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Data Analysis And Interpretation
5.1 Introduction:
This study is to examine the impact of macroeconomic variables on the Indian bank industry’s stock returns. This study measures the variation of banks ‘stock returns to economic variables such as Consumer Price Index (CPI),and Exchange rate (Ex Rate). CPI is a measure of inflation; Exchange rate is the measurement of Indian rupee (INR) towards the foreign currencies like USD, SGD and JPY.
The data collection of the study is based on the secondary data. The data for the variables (CPI, Exchange rate) were obtained from RBI website. The data for the 5 bank’s monthly share prices (HDFC bank, AXIS Bank, ICICI Bank, IDBI Bank and YES Bank) were obtained from the NSE websites. The data for the study was taken for period of 36 months, which are the most recent 3 years data from 1st January 2009 to 31st December 2011 because to measure the impact of the variables chosen on the banks stock returns, post-recession. The data for all variables is monthly. The studies like Ibrahim (1999), Patra and Poshakwale (2006) and Liow et al. (2006) capture long-term movements in volatility by used monthly returns to avoid spurious correlation problem.
The choice of the banks is guided by the fact that they are listed companies in NSE F&O segment. The statistical package used is MS EXCEL windows 7 version. In order to analyse the co-movements between the dependent and independent variable simple regression method is used.
5.2 Research Gap Of The Study:
Worldwide stock market always deals with the exchange of currency. For this factor, we expect that exchange rate would negatively relate to banks’ stock returns. Thus, we make assumption that, when currency in a country becomes higher, it w...
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...s i.e., less than 0.5 .and also it is even negative for IDBI and HDFC bank. Hence there is no significant relationship between the 2 variables.
Conclusion:
Hence from the analysis we can conclude that the inflation have an impact on the banks stock returns but to a very small extent. Hence the null hypothesis is rejected and alternative hypothesis is accepted , i.e., there is significant impact of inflation on the bank’s stock returns . more over the F statistic values and the probability values of both the independent variables i.e., the impact of exchange rates and inflation are showing a positive relationship with the bank stock returns.
The reasons for the bank stock returns not having much impact by the exchange rate and inflation could be because many other factors might be impacting the bank stock returns which may be internal or external to the banks .
Throughout history, many different types of economic models and theories have been developed. These different philosophies of business often were an important and integral part of a government’s basic structure. For example communist countries like China and the Soviet Union practiced a type of socialism. While, democratic nations like the United States and Canada practice forms of capitalism. Also within these economic models exists different theories as well such as Keynsian economics and laissez faire economics. To understand how these types of economies work in the world today, it is important to study and define a variety of economic systems. Researching such economic systems as capitalism and socialism, and also looking at the ideas of laissez faire and the Keynsian economics, a person will start to have a better understanding of how business works in the world today.
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Money Supply plays an important role in macroeconomic analysis, especially in selecting an appropriate monetary and fiscal policy. Considerably, I am yet to come across theoretical work that has been done on this topic (analysis money supply and its impact on other variable i.e. inflation, interest rate, real GDP and nominal GDP). However some other topics similar to this one have been done by AL-SHARKAS, Adel, where he uses the same technique and models on the topic ‘out put response to shocks to interest rate, inflation and stock returns. His work investigates the relationship between the Jordanian output and other macroeconomics variables such as inflation, interest rate and stock returns. His paper employs the VAR approach method of Lee (1992) to analyze the relation and dynamic interaction among variables. The IRF and the FEVD from the VAR model are computed in order to investigate interrelationships within the system. The empirical results indicate that Interest rate and inflation are weakly negatively correlated and real stock returns and inflation is very weakly positively correlated for all leads and lags are negatively associated. Furthermore, the response of output (IPG) to shocks in stock returns (R1) is strongly positive up to the first 6 periods and after which the effect almost dies. This indicates that the relationship between stocks returns (R1) and real activity (IPG) is positive and inflation has a negative impact on IPG (Adel A. Al-Sharkas 2004).
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In the research by the Ahmad (2005) on the relationship among the daily closing price of the Bursa Malaysia Shariah index, EMAS index and the daily Malaysian three months T-bills rate. The results of the study reveal that the Bursa Malaysia Shariah index, EMAS index and three months T-bills share a long run relationship. In the short run, only changes in EMAS index tent to raise the value of BMSI and t-bills do not significantly affect both indices in Malaysia. As conclusion, the relationship between stock returns and interest rate is not stable over time and that there are differences among countries.
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