Abstract:
The aim of the paper is to explore the influence of macroeconomic variables
on stock market performance in Sri Lanka. The proxy for the stock market
performance is all share price index (ASPI) whereas Gross domestic product
(GDP), inflation rate, interest rate, exchange rate and money supply are
considered as macroeconomic variables. The population of the study consists
of all companies listed in Colombo Stock Exchange. The data was gathered
from the secondary sources and the annual time series data was employed
from 1995 to 2019. The techniques of Pearson’s correlation and multiple
regressions were employed for the data analysis and hypothesis testing.
Furthermore, Variance inflation factor (VIF) for Multicollinearity,
Augmented Dicky–Fuller (ADF) test and Breusch-Pagan-Godfrey test were
used. The findings demonstrate that GDP and money supply positively
influence the stock market performance. Interest rate and exchange rate
negatively influence the stock market performance while inflation rate has
failed to prove the significant impact on stock market performance. The study
will support to investors, academics and researchers in the fields of
economics and finance in understanding how macroeconomic variables
affect the stock market performance. It also provides insight into society and
researchers since it integrates a number of macroeconomic variables and their
interaction with the stock market.
