Abstract:
The aim of the study is to examine the impact of macroeconomic variables on stock market
performance in Sri Lanka. This study uses yearly data collected from the annual report of
the Central Bank of Sri Lanka for the period from 1990 to 2019. Macroeconomic variables
used in this study are interest rate, inflation rate, real exchange rate, and money supply
while All Share Price Index (ASPI) is used to measure the stock market performance.
Inflation rate and interest rate are found stationary at zero levels while exchange rate,
money supply and stock market performance are found stationary at levels one in
the Augmented Dickey-Fuller (ADF) test. No serial correlation is found among variables by
employing Breusch-Godfrey LM Test. The Auto-Regressive Distributed Lag (ARDL) bounds
test is used to test the long-run and short-run relationships between variables. The
empirical result reveals that there is a negative and significant impact of interest rate and
inflation rate on stock market performance while exchange rate and money supply do not
hold any significant impact on stock market performance in the long-run. Further, it is
found that there is a negative and significant impact of interest rate on stock market
performance in the short run.
