Impact macroeconomic variables on sectoral stock indices

Abstract

Abstract In this paper we analyses relationships among selected macroeconomic variables and the Indian stock market. By employing an adaptation of the arbitrage-pricing model ,we seek to determine the factors affecting a particular sector of the economy . Our results suggest that the same five factors influence each sector with a lag period of one month. The period we have considered is 1995 to 2001 as this is the time that economic reforms in the country have started to bear fruit and inflation has stabilised over this time .We investigate the degree of commonality in the various macroeconomic variables across the Indian market using deseasonalised period returns extracted using a principal components approach.