Macroeconomic Determinants of the Behavior of Dhaka Stock Exchange (DSE)

Macroeconomic Determinants of the Behavior of Dhaka Stock Exchange (DSE)

Nabila Nisha (Department of Accounting and Finance, North South University, Dhaka, Bangladesh)
DOI: 10.4018/IJABIM.2016010101
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Abstract

Many past studies documented a strong evidence of a linkage between stock prices and macroeconomic activities across different stock markets and time horizons. However, most of these studies have focused on developed economies and highlighted the impact of either domestic variables or a few global factors. In recent times, the impact of global macroeconomic factors upon stock returns has garnered a lot of interest due to globalization. The aim of this paper is therefore to examine the combined influence of global and domestic macroeconomic factors upon stock returns and extend this relationship to an emerging market of Bangladesh. Using Vector Autoregression (VAR) model, findings indicate a considerable impact of money supply for the stock returns of Dhaka Stock Exchange (DSE). Additionally, an insignificant influence of the world price index is observed, which implies a complete segmentation of DSE from the global financial markets. Finally, the study highlights regulatory changes and policy-making decisions from the perspective of Bangladesh.
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Literature Review

Studies on the linkage between stock returns and macroeconomic variables are motivated by the use of various asset pricing specifications, based on which a number of empirical research has been conducted in both developed and emerging economies across the world. As such, the current study highlights the notable empirical studies in this regard, followed by the research platform of the study and finally, the theoretical background of the proposed constructs has been discussed to determine the gaps for the study.

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