A n Analytical Study on the Relationship between the Selected Macroeconomic Predictors and Stock Prices in Indian Perspective

Abstract

The Stock Markets of every country are the yardstick of the performance of the newlineeconomy. (Syed, 2021). The origin of the stock market in India took place about 146 newlineyears ago, and with the moving ridge of economic straighten outs since 1991 in the newlineIndian stock market. (Venkatraja, 2014), the reform of economic activities in the Indian newlinecapital market since 1991 has passed through a series of radical sift and an auction newlinebased system in the government securities market (Palamalai and Prakasam, 2014)This newlinestudy aims to explore the relationship between macroeconomic predictors and stock newlineprices in India post-economic reform. Previous research has primarily focused on two newlinetheories: the Efficient Market Hypothesis (EMH) and the Arbitrage Pricing Theory newline(APT). The EMH suggests that stock prices reflect all available information, rendering newlinepast data irrelevant for predicting future prices (Fama, 1965, 1970). In contrast, the APT newlineand the Present Value Model (PVM) propose a dynamic link between the stock market newlineand economic activities. newlineIt is understood that according to EMH, the stock market prices incorporate all newlinerelevant information. Thus, past information may be useless in predicting future asset newlineprices. However, at the same time, asset pricing theories such as the Arbitrage Price newlineTheory (APT) and the Present Value Model (PVM) illustrate the dynamic relationship newlinebetween the stock market and economic activity by admitting that the information newlineregarding the movement of macroeconomic variables is important to predict the future newlineprices of securities and the players of the stock market able to earn abnormal profit by newlineusing the macroeconomic information. These theories demonstrate the stock market newlinesensitivity by incorporating the information of macroeconomic variables. So, there newlinearises a contradiction between EMH and asset pricing theories. Further, these newlinetheories raise the following fundamental questions, which motivate us to conduct this newlineresearch work. newline