Impact of Foreign Exchange Reserve, Exchange Rate and Crude Oil Price on Dhaka Stock Exchange Index: An Empirical Evidence from Vector Error Correction Model

  • Uttam Golder Lecturer, Department of Finance and Banking, Jashore University of Science and Technology, Jashore-7408, Bangladesh https://orcid.org/0000-0003-1302-838X
  • Md. Nazrul Islam Assistant Professor, Department of Finance and Banking, Jashore University of Science and Technology, Jashore-7408, Bangladesh https://orcid.org/0000-0002-9591-1442
  • Md. Shahidullah Kayser Assistant Professor, Department of Finance, Jagannath University, Dhaka-1100, Bangladesh https://orcid.org/0000-0002-1846-8424
Keywords: Crude Oil Price, DSE Index, Exchange Rate, Foreign Exchange Reserve, VECM.

Abstract

The supreme thrust of the present analysis is to explore the influences of foreign exchange reserve, exchange rate, and crude oil price on the stock index of the Dhaka stock exchange (DSE) of Bangladesh. Moreover, this study evaluates the identity of any unpremeditated relationship among the variables from the viewpoint of an emerging country like Bangladesh. Through using monthly time-series data, this study tries to discover the evidence of a long-run affiliation among the variables by using Johansen’s Cointegration test and Vector Error Correction Model (VECM). Besides, the Granger Causality technique is introduced to examine the casualty among variables where the empirical results show a causal linkage between the Dhaka stock exchange index, foreign exchange reserve, and exchange rate, moving only in one way from Dhaka stock exchange index to foreign exchange reserve and exchange rate. In contrast, no causal link was identified between Dhaka stock exchange indexes and crude oil prices. Lastly, Impulse Response Function suggests a permanent effect of all selected macroeconomic factors on the Dhaka stock exchange index in the long run and Variance Decomposition Analysis settles that, the reform in Dhaka stock exchange index can be caused by the innovation in foreign exchange reserve, exchange rate, and crude oil price.

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Published
2020-06-22
How to Cite
Golder, U., Islam, M. N., & Kayser, M. S. (2020). Impact of Foreign Exchange Reserve, Exchange Rate and Crude Oil Price on Dhaka Stock Exchange Index: An Empirical Evidence from Vector Error Correction Model. Indian Journal of Finance and Banking, 4(1), 134-143. https://doi.org/10.46281/ijfb.v4i1.633
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper