Sensitivity Analysis of Indian Stock Market towards Macroeconomic Variables

Abstract

Due to unforeseen social and economic factors, the stock returns have been swinging upward and downwards with irrational exuberance. Using the Vector Autoregressive Regression and Vector Error Correlation Model, this research examines the equilibrium correlations between stock market indices and macroeconomic indicators in India from March 2010 to December 2020 to highlight linear inter-dependencies. At the 0.05 level of significance, the calculated co-integration rank test and the Max-eigen value test showed that there are two co-integration equations. Moreover, the research demonstrated that macroeconomic indicators seemed to have a meaningful impact on stock market turbulence. Additionally, the findings revealed that the BSE SENSEX is hyper delicate to macroeconomic indicators such as real GDP and broad money supply.