Abstract:
This paper investigates the nature of the causal relationship between stock prices
and macroeconomic aggregates in the foreign sector in India. By applying the techniques
of unit–root tests, cointegration and the long–run Granger non–causality test recently
proposed by Toda and Yamamoto (1995), we test the causal relationships between the
BSE Sensitive Index and the three macroeconomic variables, viz., exchange rate, foreign
exchange reserves and value of trade balance using monthly data for the period 1990-91
to 2000-01. The results suggest that there is no causal linkage between stock prices and
the three variables under consideration.
