Impact of Real Exchange Rate and Trade Openness on Sectoral Indices of Banking and Auto Industry: An Analysis of Vecm Based Granger Causality Test

Abstract

The main objective of this study to analyse the impact of macroeconomic variables on the share prices of Banking and Auto industries. In the history of development of our economy, stock market always plays a very important role. Economy always affected by various macroeconomic variables in which the variables at global level are affecting and cause a lot of changes in functioning of financial market. Various studies have been shown this relationship by applying different financial models.For this study, two major macroeconomic variables, Real Exchange Rate and Trade Openness have been taken as independent variables and two sectoral indices i.e. BSE BANKEX and BSE AUTO have been taken as dependent variables. Study employed, Augmented Dicky Fuller Unit Root test for converting data into stationary followed by Co-integration test and VECM(Vector Error Correction Model) based Granger Causality test for checking the causality among the dependent and independent variables. Monthly time series data from the period January 2009 to Dec 2019 has been taken for the study.