Impact of Macroeconomic Indicators on Stock Market Capitalization of Bangladesh: Empirical Evidence from Dhaka Stock Exchange

The purpose of this study is to investigate the impact of economic factors, such as foreign exchange reserves, interest rates, and inflation, on the magnitude of Bangladesh’s stock market capitalization from 2001 to 2023. The data came from the annual economic trends of the Central Bank of Bangladesh. To ensure homogeneity and prevent possible conflicts, the study used 23 observations per variable and transformed the information into a natural logarithmic format. For the goal of projecting the influence that these independent variables- foreign exchange reserves (FOREXR), interest rates (INT), and inflation (INF)-had on the stock market capitalization (SMC), a comparison was done between them and the dependent variable, the capitalization of the DSE. FOREXR and INF show significant positive coefficients in the short and long run, according to the ARDL model and ARDL limits test. On the other hand, it has been demonstrated that INT at level data has a minimal negative coefficient over the short and long terms. Again, INT at one period lag data was shown to have a negative and insignificant coefficient in the near term. Furthermore, the Wald test demonstrated that FOREXR, INF, and INT all influence the movement of OCF. According to the error correction model (ECM), resolving historical dynamic disequilibrium requires substantially less time. The paired Granger causality test for this study does not rule out the possibility that the explained and explanatory variables are causally connected.