VOLATILITY NEXUS BETWEEN STOCK MARKET AND MACROECONOMIC VARIABLES IN BANGLADESH: AN EXTENDED GARCH APPROACH

Md. ABU HASAN, ANITA ZAMAN

Abstract


This paper  examines  the volatility of the Bangladesh stock market returns  in response  to  the  volatility of the  macroeconomic variables employing monthly data of general index of Dhaka Stock Exchange (DSE) and four macroeconomic variables (Call Money Rate, Crude Oil Price, Exchange Rate and SENSEX of Bombay Stock Exchange) from January 2001 to December 2015. The results of GARCH-S models reveal that the volatility of DSE return is significantly guided by the volatility of macroeconomic variables, such as, exchange rate and SENSEX. Specifically, volatility of the DSE is expected to 19% increase by 1% increase of exchange rate. Moreover, the volatility of the Bangladesh stock market returns is expected to dampen down by 2% with an increase in the volatility of Indian stock market of 1%. Thus, we can comment that adding exchange rate or stock returns of India in the GARCH model provides significant knowledge about the behavior of the DSE volatility. 


Keywords


Stock Market, Macroeconomic Variables, Volatility, GARCH

JEL Codes


C32, C58, G10, G12

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References


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DOI: http://dx.doi.org/10.1515/saeb-2017-0015

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