Linkage of Indian stock market with domestic macroeconomic variables and developed global stock markets

Abstract

The success / failure of an economic system largely depends upon the soundness of its financial market. The sound financial market ensures provisioning of funds, avoidance of liquidity crunch, industrial growth, risk-return optimisation and smooth functioning of economic activities. In terms of duration, a financial market can be classified into money market and capital market. The money market is used for short term financial instruments like treasury bills, commercial papers, certificate of deposits etc. This market is highly-liquid and less risky. On the other hand, the capital market is used for long term financial instruments i.e., the instruments having a maturity period of more than one year. It facilitates investments and trading of long-term securities and assets like shares. The securities are either sold in primary capital market through issuance of securities by corporate or can be traded in secondary capital market whereby investors purchase / sale their securities through stock exchanges. The results of this study are important for regulators and policy makers to protect the interest of their investors and economic agents. The results will be helpful for them to examine and identify markets which may have a direct impact on functioning of stock market. newline