IMPACT OF MACROECONOMIC VARIABLES ON THE STOCK PRICE OF NEPALESE COMMERCIAL BANKS

Abstract

Financial institutions contribute to the national economy by accumulating the capital funds to meet the financial needs of different productive and business sectors. Commercial banks play an important role in the financial service industry and they have become a principal financial intermediary in the fund transfer system. Stocks in the banking industry are one of the stocks that are highly sought after by investors. Banks that have good health will attract many investors. Stock markets are essential for economic growth as they insure the flow of resources to the most productive investment opportunities. Many studies have been undertaken to study on factors affecting the stock price in development countries but in Nepal there are few studies which have been conducted on this issue. This study investigates the relationship between stock price, bank specific and microeconomic variables of selected Nepalese commercial banks. The stock price in the market is not static rather it changes every day. The most obvious factor that influence are demand and supply factors. The price of any commodity is affected by both micro economic and macro economic factors. This study basically aimed to examines the empirical relationship between the stock price, bank specific and micro economic variables of selected Nepalese commercial banks. The study is based on secondary data of 3 commercial banks with 30 observations for the period of 2013/14 to 2022/23. This study is basically based on the analysis of secondary data. The data for bank specific variables including stock market data have been obtained from financial statement of sample firms recorded in the database of Nepal Stock Exchange (NEPSE) Limited and Securities Board of Nepal (SEBON) provided in their respective website. NEPSE and SEBON have maintained the record of specific financial data from the fiscal year 2013/14 to 2022/23 in their respective database in websites. The annual data series on macroeconomic variables such as GDP, inflation and money supply have been obtained from websites of World Bank. For data analyzing the relationship, market price per share is used as a dependent variable. ROA are used as firm specific independent variables whereas GDP, inflation and money supply are used as macroeconomic independent variables. The results of the study showed that inflation is most significant and positive factors affecting market price per share of Nepalese commercial banks. Thus, higher inflation higher would be the xii market price per share. However, gross domestic product and money supply has the negative impact on market price per share. Thus, higher the gross domestic product and money supply lower would be the market price per share. The study also showed that inflation and money supply is the major determinants of stock return in Nepalese commercial banks. The result shows that inflation and money supply have positive impact on stock return indicating that higher the inflation and money supply higher would be the stock return. However, gross domestic product negatively affects stock return. Thus, higher the gross domestic product lower would be the stock return. Finally, the study concluded that gross domestic product followed by money supply and in flationis the most influencing factor that explain the changes in the stock price in terms of stock returns of Nepalese commercial banks. The study also concluded that gross domestic product followed by money supply is the most influencing factor that explain the changes in the stock price in terms of market price per share in Nepalese commercial banks.