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Impact of GDP Growth Rate, Inflation Rate & Lending Interest Rate on Sensex Returns

Phillip Arthur Fisher (Author – Common Stock and Uncommon Profit ) Another testament to the fact that investing without an education and research will ultimately lead to regrettable investment decisions. but the value of nothing."The stock market is filled with individuals who know the price of everything. Research is much more than just listening to popular opinion. ." .

Inflation Rate and Lending Interest Rate on Sensex Performance & the Level of Significance between them.Objectives  The study aims to find the relationship between Gross Domestic Product Growth Rate.  Tool to understand the behaviour of Stock Market .

Significance Level between variables Collection of Data  Annual Data .Websites of Ministry of Finance. BSE India. . Economic Survey of India.13 Years  Sources .Research Design Nature of the Study  Analytical  Vector Auto Regression Model . World Bank and RBI.

Percentage change in the GDP Growth Rate. change in Inflation Rate.  The study was conducted on BSE SENSEX. .Methodology  Data about 3 Macro Variables were collected for the period of 19972011. and Percentage change in Interest Rate.  The Model represents SENSEX Returns.

231 -4.56 -2.006 -0.998 -3.855 0.Dickey-Fuller Unit Root Test  Out to check for the stationarity /non-stationarity  Based on the model: Yt = Yt-1+ut  Reject the null hypothesis.069 -0.295 0.38 -4.149 0.441 0.611 -2.011 0.001 -1.001 -0.102 -3. if ρ is significant and negative Variable SENSEX GDP Inflation Inflation (-1) Interest Rate Interest Rate (-1) ρ t-stat P-value -1.01 .286 0.042 -1.

One-Year lags for GDP Growth Rate.GDPt-j+ 2jWPIt-j+ 3j IRt-j+€t  The F-Test of the VAR output was performed to determine the significance of the impact of each macroeconomic variable on SENSEX Returns. The unrestricted VAR model is given as follows: St = α + 1j. Two-Year lags for Inflation Rate & Interest Rate. as determined from the auto-correlation functions. .  Vector Auto Regressive (VAR) Model to test for the impact of the Macro Economic Variables on Sensex Returns.

Results of Auto Correlation– GDP Growth Rate .

Results of Auto Correlation – Inflation Rate .

Results of Auto Correlation – Interest Rate .

Results of VAR Model – Sensex Returns .

445a Model Summary Adjusted R Std.825 .707 -.453 t .520 8.690 Std.431 Sig.989 .268 1.28445 ANOVAb Sum of Mean Squares Square Model df F Sig.081 .474 3 1390.664 .824 6.186 .450 -.795 .742 . .167 Standardized Coefficients Beta .1) DIFF(InterestRate.014 . Error 45. 1 Regression 4172.142 -.1) B .020 3.VAR Model Summary Mode l 1 R .943 11.364 12 Unstandardized Coefficients 1 Model (Constant) GDP growth DIFF(Inflation. Error of Square the Estimate R Square .543 Total Coefficientsa 21034.553a Residual 16861.069 43.198 -.890 9 1873.651 2.

186114 Significance 0.202186 0.048872 P-Value 0.344a 0.Results of F-Test Of VAR Model Variable GDP Inflation Interest Rate F-Stat 0.794772 0.071801 2.663596 0.923a .370a 0.

.Conclusion “Shallow Men believe in Luck.  Scope for further study in examining the impact of other Macro Economic variables.  The results of the same study may vary if Weekly or Monthly data is considered. Wise & Strong Men in Cause & Effect”  The study revealed that there is no significant relationship between the GDP Growth Rate. Inflation Rate & Lending Interest Rate on Sensex Returns.