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ISSN : 2765-6934

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Vol.11 No.4
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Dynamic Interaction between Conditional Stock Market Volatility and Macroeconomic Uncertainty of Bangladesh

Asian Journal of Business Environment / Asian Journal of Business Environment, (P)2765-6934; (E)2765-7027
2021, v.11 no.4, pp.17-29
Mostafa ALI (University of Chittagong)
Md. Ali Arshad CHOWDHURY (University of Chittagong)
Mostafa, A. , & Md., A. A. C. (2021). . Asian Journal of Business Environment, 11(4), 17-29.
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Abstract

Purpose: The aim of this study is to explore the dynamic linkage between conditional stock market volatility and macroeconomic uncertainty of Bangladesh. Research design, data, and methodology: This study uses monthly data covering the time period from January 2005 to December 2018. A comprehensive set of macroeconomic variables, namely industrial production index (IP), consumer price index (CPI), broad money supply (M2), 91-day treasury bill rate (TB), treasury bond yield (GB), exchange rate (EX), inflow of foreign remittance (RT) and stock market index of DSEX are used for analysis. Symmetric and asymmetric univariate GARCH family of models and multivariate VAR model, along with block exogeneity and impulse response functions, are implemented on conditional volatility series to discover the possible interactions and causal relations between macroeconomic forces and stock return. Results: The analysis of the study exhibits time-varying volatility and volatility persistence in all the variables of interest. Moreover, the asymmetric effect is found significant in the stock return and most of the growth series of macroeconomic fundamentals. Results from the multivariate VAR model indicate that only short-term interest rate significantly influence the stock market volatility, while conditional stock return volatility is significant in explaining the volatility of industrial production, inflation, and treasury bill rate. Conclusion: The findings suggest an increasing interdependence between the money market and equity market as well as the macroeconomic fundamentals of Bangladesh.

keywords
Stock Market Volatility, Macroeconomic Environment and Uncertainty, GARCH Family of Models, Bangladesh

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