Macroeconomic Determinants of the Behavior of Dhaka Stock Exchange (DSE)

Many past studies documented a strong evidence of a linkage between stock prices and macroeconomic activities across different stock markets and time horizons. However, most of these studies have focused on developed economies and highlighted the impact of either domestic variables or a few global factors. In recent times, the impact of global macroeconomic factors upon stock returns has garnered a lot of interest due to globalization. The aim of this paper is therefore to examine the combined influence of global and domestic macroeconomic factors upon stock returns and extend this relationship to an emerging market of Bangladesh. Using Vector Autoregression (VAR) model, findings indicate a considerable impact of money supply for the stock returns of Dhaka Stock Exchange (DSE). Additionally, an insignificant influence of the world price index is observed, which implies a complete segmentation of DSE from the global financial markets. Finally, the study highlights regulatory changes and policy-making decisions from the perspective of Bangladesh.