Impact of Macro-Economic Variables on Stock Market in Nepal : An ARDL Approach

The study examines the relationship between stock market index (NESPSE Index) and four macroeconomic variables; broad money supply, gold price, interest rate of 91 days treasury bills and real exchange rate for the period of 1994 to 2017. Time series data have been used to examine the relationship between the variables under consideration. The Bound test result confirmed that there is a long-run relationship among the variables. The ARDL result, aligning empirical results, reveals that interest rate is the most determining factors for the stock market index in Nepal. Nepalese stock market is highly interested sensitive while the gold price has insignificant impact on the stock market. Though Nepalese economy is termed as remitonomy (remittance based economy), the real exchange rate has insignificant effect on the stock market. In a nutshell, macroeconomic variables have a notable impact on stock market. Considering the result, the policymaker should take care of macroeconomic variables while formulating policies regarding capital market development