Abstract:
Stock market performance is considered as a significant indicator
of financial and economic circumstances of a country. In a
nutshell, a secured and regulated financial environment is being
provided by the stock market where shares can be transacted at
lower operational risk. The stock market also functions as a
platform through savings, and investments of individuals are
channelized into productive investment proposals. It allows
capital formation and economic growth for the nation. The
ultimate objective of this study is to examine the impact of macro-
economic variables on stock market performance. The macro-
economic variables (independent variables) used in this research
study are Inflation, Interest Rate, and GDP. Stock market
performance (All-Share Price Index) is the dependent variable.
120 Monthly observations from January 2009 to December 2018
had been taken for the study. The Augmented Dickey Fuller’s unit
root test, Ordinary Least Squares Regression and Correlation
analysis were applied to the variables. The results of correlation
analysis indicated that inflation and Stock market performance
are positively associated meanwhile interest rate, and GDP and
Stock market performance are negatively correlated. The
Ordinary Least Square results showed that nearly 75% of the
variation in all share price index is explained by the three
macroeconomic variables, GDP, TB and WPI. The study suggested
some of the possible reasons for the positive impact of Inflation on
the Colombo Stock market performance, and negative impact of
Interest Rate on Stock market performance and recommended
that efforts should be made to improve the Stock market
performance.
