Cointegrating Relationship between Macroeconomic Predictors and Stock Prices in India

The economic and sustainable growth of India is vital in the current era. The movement of the economic environment and capital market have an important role in the growth of our nation. The current study established the long-run and short-run relationship between the macroeconomic variables (i.e., gold prices, money supply, and foreign exchange reserve) and stock prices (i.e., S&P CNX Nifty Index) for the period from April 1995 to March 2023. By employing Johansen cointegration, it found that the GP, MS, and FER have a long-run relationship with stock prices i.e., NIFTY. Moreover, the VECM found short-run dynamics of the variables with one or two lags to meet the long-run equilibrium. This study will support the investors, managers and policy makers to make crucial decisions in this area.