Money Supply and Stock Prices: An Econometric Analysis for India

Abstract

The linkages between money supply and stock prices are significant in today's scenario. The idea of this study is to check connections between money supply and stock returns in the Indian context with the help of Unit root tests, Johansen's co integration test and Correction Model of Vector Error. The study is based on secondary database. The monthly prices of BSE Sensex for the period from January 2008 to December 2017 was obtained from the Centre for Monitoring of Indian Economy (CMIE) prowess database and money supply data were collected from the website of Reserve Bank of India. The results of the study indicate long-term relationship between money supply and stock prices. The present study may be of use to investors, analysts in their investment decision making. The results of this study may also be of use to policy makers, researchers and regulators.