Macroeconomic variables on stock prices: evidence from all share price index and milanka price index

Abstract

The aim of this paper is to examine the degree and pattern of impact of macroeconomic variables on stock prices namely All Share Price Index and Milanka Price Index. The study employed macroeconomic factor model for monthly data of selected variables over the period from January 2008 to December 2012. In order to investigate the objectives of this study,exchange rate, treasury bill rate and inflation rate are used as independent variables and All Share Price Index (ASPI) and Milanka Price Index (MPI)to represent the stock prices are used as the dependent variables in this study. The findings from multiple regression analysis reveal that all selected macroeconomic variables exchange rate, treasury bill rate and inflation rate are giving 85.5% of the variation in ASPI and 75.2% of the variation in MPI. All selected macroeconomic variables are having the same pattern of impact on both stock prices namely All Share Price Index and Milanka Price Index. The exchange rate and treasury bill rate have a significant negative impact on both stock prices while inflation rate significant positive influences the both stock prices. This pattern of impact is used as a consideration for interested parties in Sri Lankan Stock Market.