Monetary Policy Impact on Stock Returns for Selected South Asian Countries

Authors

Neluka Devpura, University of Sri Jayewardenepura - Sri LankaFollow
Paresh Kumar Narayan, Monash Business School, Monash UniversityFollow
Navin Perera, Central Bank of Sri LankaFollow

Document Type

Article

Abstract

In this paper, we examine the monetary policy impact on the stock market returns and volatility for four major South Asian countries (Bangladesh, India, Pakistan, and Sri Lanka). We test our hypothesis that monetary policy influences both the first and second order of stock returns by using monthly data. The short-term interest rate and the Treasury bill rate are employed as proxies for monetary policy. Controlling for industrial production, inflation, exchange rates (vis-à-vis the US dollar), US interest rate, and money supply, our findings indicate that there exists a statistically significant impact of short-term interest rates on stock returns only in the case of Sri Lanka. However, when we consider the Treasury bill rate as a proxy for monetary policy, we find evidence that it has a statistically significant effect on stock returns in all the four countries. There is limited evidence that monetary policy influences volatility.

Recommended Citation

Devpura, Neluka; Narayan, Paresh Kumar; and Perera, Navin (2024) "Monetary Policy Impact on Stock Returns for Selected South Asian Countries," Bulletin of Monetary Economics and Banking: Vol. 27: No. 3, Article 2.
DOI: https://doi.org/10.59091/2460-9196.2289
Available at: https://bulletin.bmeb-bi.org/bmeb/vol27/iss3/2

First Page

397

Last Page

434

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Sri Lanka

Affiliation

University of Sri Jayewardenepura,