EMPIRICAL ANALYSIS OF

STOCK MARKET PERFORMANCE

AND
ECONOMIC GROWTH

DECODING CAUSALITY AND DYNAMICS

 When ?
Who ? Where?
2011
Rakesh Gupta
Sudarshan Reddy Paramati
India- International Research
Journal of Finance and
Economics

Who ? When ? Where ?

Aim of the study
TO STUDY :

CAUSALITY BETWEEN STOCK MARKET

PERFORMANCE AND ECONOMIC
GROWTH

SHORT RUN AND LONG RUN DYNAMICS

OF STOCK MARKET
Causal Nexus

Stock Market Performance Economy Growth

Stock Market Performance Economy Growth

Stock Market Performance Economy Growth

Stock Market Performance Economy Growth

Existing Studies

Malaysia France
-Period-
1977- 2006 1965-2007

-Variables under Study-

Study on RGDP And Study on RGDP &

Kuala Lumpur CAC 40
Composite Index
-Causality-
Stock Market  Economy Economy  Stock Market
 CONFLICTING NATURE
OF
STUDIES
IN INDIAN CONTEXT

Demand Following Hypothesis Supply Leading Hypothesis

Chakroborty - 2008 Deb and Mukherjee - 2007

Data & Methodology
Economic Growth Stock Market Performance
Indicators Indicators
Variable1 •RGDP Variable1 •BSE SENSEX

Variable2 •IIP Variable2 •NSE NIFTY

Engle
Statistical Tests
Granger
Unit Granger
Causalit Cointegra
Test yCorrection
Test
Error
tion test
Model
 Results
 Granger Causality Test shows that there is a bidirectional
relationship between IIP and stock prices ( BSE SENSEX
AND NSE NIFTY).

 Quarterly results show that there is no causal relationship

between GDP and SENSEX, but in case of NSE AND GDP,
there is an unidirectional relationship that runs from GDP
to NSE.

 Engle Granger cointegration test confirmed that there is a

long run relationship between stock market performance
and economic growth.
Conclusion

 Results of this study provide evidence in favour of ‘demand

following’ hypothesis for the Indian context in the short-run.

 Findings of the study suggest that the economic growth has been
playing an important role in determining the stock price
movements and economic growth also tends to be more likely to
stimulate and promote stock market development by adopting
appropriate reallocation of resources.