IMPACT OF MACROECONOMIC VARIABLES ON STOCK MARKET RETURNS: A QUANTITATIVE ANALYSIS

Abstract

Stock markets play a crucial role in the economic development of a country by mobilizing savings and allocating capital efficiently. Macroeconomic variables significantly influence stock market behavior, as they reflect the overall economic environment in which firms operate. This study aims to quantitatively examine the impact of selected macroeconomic variables on stock market returns using econometric techniques. The variables considered include inflation rate, interest rate, exchange rate, gross domestic product (GDP) growth, and money supply. The study employs time- series data and applies multiple regression analysis to evaluate the magnitude and direction of the relationship between macroeconomic indicators and stock market returns. Descriptive statistics are used to understand the basic characteristics of the data, followed by correlation analysis to examine the interrelationships among variables. Stationarity tests such as the Augmented Dickey-Fuller (ADF) test are applied to ensure data reliability. The regression results reveal that interest rate and inflation exhibit a statistically significant negative impact on stock market returns, while GDP growth and money supply show a positive and significant relationship. Exchange rate fluctuations demonstrate a mixed impact, depending on market conditions and investor expectations. The model explains a substantial proportion of variation in stock returns, indicating strong explanatory power. The findings provide valuable insights for investors, policymakers, and financial analysts by highlighting the importance of macroeconomic stability for stock market performance. The study concludes that effective monetary and fiscal policies can enhance stock market efficiency and investor confidence, thereby contributing to sustainable economic growth.