Role of microeconomic variables in the growth of nepal stock market

Abstract

This study is about the role of important macroeconomic variables in the growth of the Nepal Stock Market. The main objective was to understand how variables like GDP growth rate, inflation, money supply, interest rate, exchange rate, and foreign investment affect the NEPSE Index and market capitalization in Nepal. For this research, secondary time-series data from 2012 to 2024 were used. The study applied statistical methods including descriptive analysis, correlation, and multiple regression analysis. In particular, the Multiple Regression Model (MRM) testing approach was used to find the long-run relationship between macroeconomic variables and stock market performance. The findings show that GDP growth has a strong positive effect on the stock market returns, with a long-run positive coefficient indicating a significant impact. Inflation and exchange rate changes were found to have a negative effect, though inflation was sometimes statistically insignificant. Money supply showed a positive association with stock market prices, and interest rates were generally negatively related and statistically significant. The speed of adjustment to equilibrium errors was about 47.57%, meaning that any short-term imbalance tends to correct itself relatively quickly. The results confirm that macroeconomic conditions importantly influence the Nepalese stock market over the long term.

Keywords: Nepal Stock Market, Macroeconomic Variables, GDP Growth