Stock Market Prices and the Macroeconomics of Emerging Economies: the Case of India

Abstract

This paper investigates the relationship between stock market capitalization  (stock prices) and selected macroeconomic variables in India.  The empirical results suggest that, in the long run, output growth and exchange rate are positively related to stock prices, while money supply exhibits a negative relationship to stock market capitalization. In the short run most of the variation in the stock market is captured by its own innovation, although the exchange rate, the price level and the interest rate seem to have some effect on the short-run stock capitalization.