The global financial crisis and variability in the stock price index in India: a vector error correction model approach

We study the cointegration and causality between the various macroeconomic variables, global financial crisis (GFC) and the Indian economy [National Stock Exchange (NSE)] stock price index (SPI) from 1995-2018. We analyse how the macroeconomic variables: exchange rate (EX), gross domestic product (GDP), consumer price index (CPI), and money supply (M2) and SPI are related using a vector error correction model (VECM). The results suggest a long-run cointegrating relationship between the above-mentioned macroeconomic variables and SPI. We also find that bidirectional causality exists between GDP and SPI in India. The results also show that SPI and GFC have a significant negative relationship.