An Empirical Analysis of the Effect of the Foreign Direct Investment and Exchange Rate on the Stock Market of Bangladesh

Abstract

Purpose: This study aims to analyze the impact of the selected macroeconomic variables Foreign direct investment (FDI) and Exchange rate (ER) on the stock market of Bangladesh.
Methodology: Different models such as, the multivariate regression analysis, Granger causality test, Johansen cointegration test, Vector error correction (VEC) model from the econometric theory were conducted to answer the research questions of the study. Using the application software EViews 11, data had been analyzed where data covered the time series for the selected variables from 1993 to 2019.
Findings: Empirical evidence of the study leads to prove the existence of a significant causal link from the stock market toward FDI but does not indicate any significant causality with the Exchange Rate in terms of the scenario of Bangladesh.
Limitations: Findings of the study need to be interpreted cautiously since the the joint impact of the selected macroeconomic variables on the stock market in light of Bangladesh attributed an inconclusive remark.
Originality/Value: Contribution of the paper reflects on the addressing of the research gap regarding the behaviour of the stock market, FDI, and ER simultaneously both in the long and short run from the perspective of Bangladesh.