A study on the effects of macroeconomic variables on the returns

The study of economic variables impact on performance of the stock exchange has always been considered by economists and financial researchers. In this research, the impact of three major economic variables, namely as money stock, inflation rate and gross domestic product (GDP) on the stock exchange return during 1990 to 2002 has been studied. The result of applying Vector Auto-Regression (VAR) and Vector Error Correction Model (VECM) shows a positive and meaningful relationship between inflation rate and stock exchange return. However, there is no meaningful relationship between variables of money stock, GDP and stock exchange return.