Journal of Global Economics, Management and Business Research

Stock market (SM) is said to reflect the health of the country’s economy. The SM of countries like India carries huge expectations of the investors. The linkage of SM with the macro-economic variables has always been an area of interest among the investors and the policy makers. There is an extensive group of macro-economic variables that influence the stock prices in the SM. Hence, the study is mainly attempted to investigate the co-integration and causal relationship between selected macro-economic variables viz., exchange rate (ER_US$), gold price (GP), wholesale price index (WPI), weighted average call money rate (WACMR), index of industrial production (IIP), index of service production (ISP) and stock returns of Standard & Poor's CNX Nifty for a period of three years ranging from 2011-12 to 2013-14 based on the data collected from National Stock Exchange (NSE) and Reserve Bank of India (RBI).

The study found that the trace statistics and the maximum eigenvalue statistics identify one co-integrating vector at 5% level, revealing that there exists a causality between the exchange rate (0.017), gold price (0.040) as well as wholesale price index (0.010) and Standard & Poor's CNX Nifty at 5% level. However, index of industrial production (IIP), index of service production (ISP) and weighted average call money rate (WACMR) did not show any causality with Standard & Poor's CNX Nifty. Therefore, it is concluded that the macro-economic variables viz., exchange rate (ER_US$), gold price (GP), wholesale price index (WPI) have causality with the S&P CNX Nifty.