A Study on Relationship between Stock Market and Economic Growth in Nepal

Abstract

This study aimed to examine the relationship between stock market and economic growth in Nepal. The research an analyed of stock market factors like; stock market capitalization (MC), trading turnover (TT), number of listed securities (NOLS) and market index (MI) against the real gross domestic product (RGDP) which was used as a proxy for economic growth. Secondary data were used for the study collected from the Economic Bulletin of Nepal Rastra Bank and Economic Survey of the Ministry of Finance for 24 years from 1994/95 – 2017/18(Mid July). Data were analyzed by using appropriate the descriptive research design was used. The regression models were used to test significance of stock market performance and macroeconomic variable i.e. Real GDP. From the results, it was revealed that there was a positive relationship between stock market indicators and economic growth in Nepal. Thus, the study lends support both to the financial intermediation literature as well as to the traditional growth literature. This study concludes that capital market development affects the growth of the financial sector. This study also revealed that market capitalization, change in stock market price and trading volume affect economic growth. The NEPSE plays an important role in the economic growth of Nepal and the study therefore recommends that the government needs to do much to attract and encourage active participation of stock markets sector. The study recommends that NEPSE needs to be developed further to enhance domestic resource mobilization. Policymakers should encourage stock market development. The study also recommends that various policies and programs that affect stock markets such as tax, legal, and regulatory barriers need to be addressed.