Macroeconomic Link to Indian Capital Market: A Post-Liberalization Evidence

The present paper attempts to investigate the dynamic relation between the stock market and the select macroeconomic variables at log-levels, in India, for the period 1991:01 to 2008:04. Findings of the study show that the long-run stock market behavior is positively related to output and exchange rate, and negatively related to short- and long-term interests, money supply and inflation. The results of the causality and innovation analysis suggest that the stock market influences the economic activities, more specifically the industrial activities and the market is expected to be more sensitive to the shocks of itself over the projected period of the study.