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Macroeconomic Variables’ Impact on Bank’s Stock Price

In: Business and Management

Submitted By mahbub224
Words 3958
Pages 16
Chapter – 3.0

An overview – Banking sector & Stock Exchange and Conceptual framework – Macroeconomic variable

|3.1 An overview of Banking sector and Stock market of Bangladesh |

We are interested in investigating the relationship between stock prices and macroeconomic variables because individual investors can earn abnormal profits by exploiting this relationship and the existence of this utilizable opportunity would then dangerously distort the market’s ability to proficiently allocate scarce resources. In other word, the stock market will lose its informational efficiency.
Informational efficiency is defined as at any given time, stock prices fully reflect all available information of the market. Thus, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. Identifying the relationship or informational efficiency thus can be used to correct the current economic stabilization policies.
Therefore, the issue of whether stock prices and macroeconomic variables are related or not have received considerable attention. This paper provides empirical evidence of the relationship between stock prices with each of the macroeconomic variables: exchange rate, inflation rate, money supply variables and so on. The knowledge of the prevailing relationship between stock prices one the one hand, and micro variables like market price/ earnings, growth rate in market capitalization, dividend yield and macro variables, like inflation, industrial production, foreign remittance, GDP and the like on the other hand, is predominantly important in view of the fact that a stable relationship among these variables is likely to form an important postulate in a variety of economic models. Many issues behind the stock market

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