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The Sri Lankan stock market and the macroeconomy: an empirical investigation

Wickremasinghe, Guneratne B (2011) The Sri Lankan stock market and the macroeconomy: an empirical investigation. Studies in Economics and Finance, 28 (3). pp. 179-195. ISSN 1086-7376

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Abstract

Purpose – The purpose of this paper is to examine the causal relationships between stock prices and macroeconomic variables in Sri Lanka, in order to examine the validity of the semi-strong form of the efficient market hypothesis. Design/methodology/approach – The paper adopts unit roots and cointegration, error-correction modelling, variance decomposition analysis, and impulse responses analysis to examine the causal relationship between six macroeconomic variables. Findings – The results indicate that there are both short and long-run causal relationships between stock prices and macroeconomic variables. These findings refute the validity of the semi-strong version of the efficient market hypothesis for the Sri Lankan share market and have implications for investors, both domestic and international. Originality/value – The paper addresses several methodological weaknesses in relation to unit root and cointegration tests which previous studies in the area of the paper have overlooked. Further, it uses more variables than those used in a previous study using Sri Lankan data.

Item Type: Article
Uncontrolled Keywords: ResPubID24163, cointegration, Colombo Stock Exchange, efficient market hypothesis, Granger causality, macroeconomics, Ng-Perron tests, Pantula principle, Sri Lanka
Subjects: Faculty/School/Research Centre/Department > School of Economics and Finance
FOR Classification > 1502 Banking, Finance and Investment
SEO Classification > 9001 Financial Services
Depositing User: VUIR
Date Deposited: 03 Sep 2012 03:29
Last Modified: 03 Sep 2012 03:29
URI: http://vuir.vu.edu.au/id/eprint/9345
DOI: https://doi.org/10.1108/10867371111141954
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Citations in Scopus: 4 - View on Scopus

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