An Empirical Investigation into Causal Relationship between Gross Fixed Capital Formation and Stock Price in India
The causal connection among different macroeconomic variables and stock prices are crucial in the formulation of a country’s macroeconomic policy and has long been a debatable issue. This article examines the effect of gross fixed capita formation (GFCF) on stock prices (SP) as well as causal connection between gross fixed capital formation and stock prices. The cointegration test confirmed that gross fixed capital formation and stock prices are cointegrated indicating an existence of long run equilibrium relationship between the two as confirmed by the Johansen cointegration test results. The Granger causality test finally confirmed the presence of uni-directional causality which runs from stock price to gross fixed capital formation but not vice-versa.
Stock Price, India, Gross Fixed Capital Formation, causality, Cointegration
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