An Inquiry into the Influence of Key Macroeconomic Variables on the Dhaka Stock Exchange Equity Returns

This study is based on the performance of the Dhaka Stock Exchange (DSE) from January 2015 to December 2024 and empirically analyses the implications for key macroeconomic variables, including interest rates, inflation rates, and currency rates. The analysis uses monthly data from the Bangladesh Bank and employs time-series econometric methodologies, including unit root tests, Johansen cointegration, vector error correction models (VECM), and Granger causality tests. The results demonstrate that all variables are integrated in order one, with indications of a singular long-run cointegrating relationship. The results indicate that interest rates have a substantial negative long-term impact on the DSE index, aligning with theoretical predictions that increased borrowing and opportunity costs diminish equity prices. Conversely, inflation and exchange rates do not exhibit statistically significant long-term effects; nonetheless, short-term dynamics indicate that inflation positively influences the index, perhaps due to speculative market behaviour. Granger causality studies establish bidirectional causality between interest rates and the DSE index, while inflation is determined to affect exchange rates. These results underscore the DSE's inefficacy, wherein macroeconomic shocks may exert delayed or exacerbated impacts on pricing. The research offers pragmatic insights for investors, policymakers, and regulators, including the importance of monetary policy coordination and enhanced market efficiency in Bangladesh. JEL Codes: G12, E00, G28, E44, C32.