Abstract:
The stock market is one of the most energetic sectors that play an important role in
contributing to the wealth of the economy. It plays a crucial role in the economic growth and
development of an economy which would benefit industries, trade and commerce as a whole.
The aim of this study is to investigate the impact of macroeconomic variables on stock
market returns in Sri Lanka. Dependent variable of this study is stock market return measured
by All Share Price Index (ASPI) and All Share Total Return Index (ASTRI) and independent
variables are macroeconomic variables, such as Interest Rate (IR), Inflation Rate (INF),
Exchange Rate (ER), Factory Industry Production Index (FIPI) and money supply (MS).
The study targets all the companies listed and active in Colombo Stock Exchange (CSE) from
2006 to 2015. For analysis, secondary data was collected from annual reports of Central bank
of Sri Lanka, Colombo Stock Exchange, Securities and Exchange Commission and
Department of Census and Statistics. The results of the study reveal that the stock market
returns is influenced by macroeconomic variables except money supply in Sri Lanka. Interest
rate and factory industry production have negative influence on stock market return in
Colombo Stock exchange while inflation rate and exchange rate have positive influence on
stock market return. The findings of the study may be useful to public and economy
especially stock market investors to focus the macroeconomic variables for making their
effective decisions in order to enhance their stock market returns.
