Statistical Analysis of 5 Microeconomics Variables

Topics: Stock market, Macroeconomics, Central bank Pages: 17 (4985 words) Published: August 25, 2012

The important aspect of contemporary financial analysis is the relationship between stock price movements and variations in macroeconomic aggregates. The paper examines the role of macroeconomic variables on Dhaka Stock Exchange (DSE) stock returns movement in Bangladesh. In this paper, the analysis is conducted by using monthly data for the period span from January 2009 to December 2012. All data are collected from Dhaka Stock Exchange, Internet. Five macroeconomic variables have been selected to assess the influence on stock return of Dhaka Stock Exchange. These are: effect of DSI with changes in inflation rate, effect of DSI with changes in foreign reserve, effect of DSI with changes in exchange rate, effect of DSI with changes in deposit rate, effect of DSI with changes in direct foreign investment. The objectives of the paper are to investigate the effect of macroeconomic factors on stock returns. A multiple correlation model is designed to test the relationship between the DSE stock returns and selected macroeconomic variables.

The relationship between macroeconomic variables and stock prices has been extensively studied in developed capital markets and the literatures on that study dates back to 1970s. However multifactor models have been developed as an explanatory factor of the variation in equity prices and these studies have typically focused on developed markets. The relationship between macroeconomic variables and stock prices has been examined in Emerging Stock Markets (ESMs) after 1980s. With the rapid transformation of economic structure, policy and institution on a global scale in the recent past, the role of capital markets as intermediary between investor an entrepreneur is getting increasing importance in developing economies. But capital market in developing economies sometimes fails to support industrialization through savings mobilization and investment fund allocation and maturity transformation because of the existence of active informal credit market; low-degree of ownership management separation; drawbacks of informational asymmetry; and difficulty in maturity transformation due to low level of accumulated financial assets. All the distinguishing characteristics of emerging capital markets can be easily identified in Dhaka Stock Exchange (DSE), the largest bourse of Bangladesh.

The knowledge of the prevailing relationship between stock prices on the one hand, and micro variables like market price, earnings, growth rate in market capitalization, dividend yield and macro variables, like inflation, industrial production, foreign remittance, GDP and the like on the other hand, is predominantly important in view of the fact that a stable relationship among these variables is likely to form an important postulate in a variety of economic models. Many issues behind the stock market fluctuations and their causal role are yet to establish for emerging economies. The stock market crash of 1996 and 2010 in Bangladesh has once again renewed the interest in investigating the dispute revolving around the significance of the changes in a stock market and their causal role in other microeconomic as well as macroeconomic factors specially in a situation of developing economies like Bangladesh. In addition, stock markets are brought into focus in this process since they are believed to be crucial factors for sustainable economic growth in a freer market economy. The purpose of this paper in to examine and analyze, in the context of Bangladesh, the extent of relationship between stock price and some selected macroeconomic variables and to test for causality among them. Dhaka Stock Exchange

First incorporated as East Pakistan Stock Exchange Association Ltd in 28 April 1954 and started formal trading in 1956. It was renamed as East Pakistan Stock Exchange Ltd in 23 June 1962. Again renamed as Dacca Stock Exchange Ltd in 13 May 1964. After the liberation war in 1971 the trading was...
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