Determinants of Market Capitalization in India and Its Impact

Determinants of Market Capitalization in India and Its Impact

Chandrika Prasad Das (Khallikote University, India) and Rabindra Kumar Swain (Utkal University, India)
Copyright: © 2019 |Pages: 14
DOI: 10.4018/978-1-5225-7399-9.ch009

Abstract

The purpose of this chapter is to study the determinants of market capitalization and to investigate the impact of determinants of market capitalization. This chapter uses secondary data from 2003-2016 relating to market capitalization, income per capita, stock market liquidity, etc. The study employed descriptive test and normality test to describe the basic features of data and their distribution. The multicollinearity test has also been used to check the interdependence among independent variables. Multiple regression statistics has been used to determine the impact of independent variables on dependent variable. The results show that there is a positive impact of determinants on development of stock market except political risk and inflation. The findings will help stock market authority, individuals, and companies to understand the factors that affect share prices.
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Review Of Literature

Jahur et al. (2014) studied the determinants of stock market and their performance in Bangladesh. The study used secondary data sources, and applied descriptive measures and linear regression model to analyse the data. The study found that all macro-economic variables like Interest Rate and Exchange Rate, Consumer Price Index have significant impact on stock market performance.

Kimani and Mutuku (2013) examined the impact of deposit rate, GDP, inflation, Central Depository System on stock market performance under Nairobi Stock exchange. They found a negative association between stock market performance and inflation in Kenya and the Central Depository System have a significant impact on stock market performance.

Mehwish (2013) conducted a study on Determinants of Stock Market Performance in Pakistan. The data was analysed quantitatively through regression analysis using E– views. With the use of time series data the study established a negative relationship between stock market performance and real interest rate, whereas the banking sector development has no significant influence on stock market performance.

Aduda et al. (2012) investigated the determinants of stock market development. The regression results stated that stock market liquidity, income per capita, institutional quality, bank development and domestic savings are significant determinants of stock market development in the Nairobi Stock Exchange.

Songole (2012) examined the relationship between stock return and selected macroeconomic variables at the Nairobi securities exchange. The study based on market interest rate, Consumer price index, Foreign exchange rate and Industrial Production Index. The study concluded consumer price index, market interest rate and exchange rate have a negative relationship with stock return, while industrial production index showed a positive relationship.

Garcia and Liu (1999) made a study on market capitalization as a determinant of stock market development. The study established that saving rate, real income, stock market liquidity and financial intermediary development are significant determinants of stock market capitalization

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Value Of The Study

  • Stock Market Authority: The findings will help to know the factors affecting the stock market and which factors are contributing towards market capitalization.

  • Individual and Companies: The study will help to understand the factors which affect share prices and they will take care of that while investing.

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Objectives Of The Study

The objectives of the study are:

  • To study the determinants of Market Capitalization.

  • To analyze the impact of determinants on market capitalization.

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