Macroeconomic Determinants of Stock Price: Vector error Correction Model (VECM) Evidence from Nepal

Abstract

Research paper inspects macroeconomic variables effect on stock exchange market price in Nepalese economy employing VECM methodology consisting of data from 1994 to 2022. Main independent variables economic output (GDP),
Nepalese consumer price index, Treasury bill rates, and broad supply money, while Nepalese stock exchange price as the dependent variable. Investigation found positive relationship between interest rate of treasury bill as well as consumer price index with Nepalese stock exchange prices in short run,
whereas GDP and broad supply money have negative effect. In long run, economic output, broad supply money, and rate of treasury bill exhibit positive effect on stock prices, while Nepalese consumer price index shows significant negative effect. The findings recommend the government should
stimulate economic activities through fiscal and monetary policies. Central bank (NRB) should carefully manage the money supply using monetary policies that macroeconomic stabilize through price level and interest rates of Nepal’s economy.