Title: Assessing the impact of macroeconomic variables on the stock market: the case of India

Authors: Annu Kumari

Addresses: Guru Gobind Singh Indraprastha University, Sector-16 C, Dwarka, New Delhi-110078, India

Abstract: Understanding the intricate relationship between macroeconomic variables and the stock market is crucial for navigating the complexities of the financial landscape. To gauge the influence of chosen macroeconomic variables on the Indian stock market, this study employed a multifaceted approach, including descriptive statistics, stationary tests, ARDL bound cointegration technique, diagnostic tests, and variance decomposition analysis. The study spans the period from 1980 to 2021. In the long run, money supply, gross fiscal deficit, and foreign exchange reserves show significant relationships with changes in stock market prices. Conversely, in the short run, the examined independent variables showcase an insignificant relationship with stock prices. This temporal aspect suggests that while certain factors wield considerable influence over extended periods, their effects might not manifest prominently in shorter time frames. Additionally, the variance decomposition analysis reveals that a substantial portion, specifically 60.9%, of changes in stock prices can be attributed to innovative shocks. This emphasises the role of unexpected and novel factors in driving fluctuations in the stock market, showcasing its inherent dynamism.

Keywords: ARDL cointegration test; foreign exchange reserves; macroeconomic variables; stock market; variance decomposition analysis.

DOI: 10.1504/AAJFA.2026.153552

Afro-Asian Journal of Finance and Accounting, 2026 Vol.16 No.3, pp.327 - 344

Received: 02 Jul 2023
Accepted: 17 Jan 2024
Published online: 14 May 2026 *

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