An Analytical Analysis of Stock Index Performance and National income: Evidence from India

Abstract

This study aims to investigate whether the stock index performance leads to national income or vice versa; study also examines short-run and long-run dynamics of the stock exchange. We use yearly data of Net national product(NNP) and NSE Nifty for the time span of 1998 to 2019 and quarterly data of Gross Domestic Production (GDP) and NSE Nifty for the period of two years i.e.2019 and 2020. This gives sufficient data for analytical and empirical analysis. We undertake; Unit root tests, Granger Causality test, Johansen Cointegration test, Vector Error Correction Model and Wald test. The results of Granger causality test suggest that there is a unidirectional relationship runs from NSE Nifty to NNP. The Johansen cointegration test suggests that there is a long-run relationship between the NSE Nifty and NNP. Similarly, the results of vector error correction model reveal that when the long-run equilibrium deviates then the NSE Nifty adjusts to restore equilibrium by rectifying the disequilibrium. Wald test confirms the presence of short run relationship between the variables. Key input of the study is in recognizing the role of stock index in national income development and to investigates the journey of the Indian stock index during the period of Coronavirus pandemic.