Macroeconomics And Share Market

Increasing attention is being paid to the relationship between share prices and the macroeconomic variables by both economists and finance specialists. In the present-day scenario, where there is an increasing integration of the financial markets and implementation of various stock market reforms, the activities in the stock markets and their relationships with the macro economy have assumed significant importance.

i. Money supply:
Money is a collection of liquid assets that is generally accepted as a medium of exchange and for repayment of debt. In that role, it serves to economize on the use of
scarce resources devoted to exchange, expands resources for production, facilitates trade, promotes specialization, and contributes to a society's welfare


ii. Inflation:
Inflation is a state in the economy of a country, when there is a price rise of goods as well as services. To meet the required price rise, individuals have to shell out more than is presumed. With increase in inflation, every sector of the economy is affected. Ranging from unemployment, interest rates, exchange rates, investment, stock markets, there is an aftermath of inflation in every sector. Inflation is bound to impact all sectors, either directly or indirectly. Inflation and stock market have a very close association. If there is inflation, stock markets are the worst affected.

iii. Employment rate:
The employment rate is one of the economic indicators that economists examine to help understand the state of the economy. The employment rate shows a country’s ability to put its population to work and thereby generate income for its citizens. Countries with higher employment rates are likely to have higher standards of living, other things being equal.

iv. Exchange rate:
Exchange rate movements frequently focus on changes in credit market
conditions, reflected by changes in interest rate differentials across countries, and changes in the monetary policies of central banks. The profit-maximizing investors in an efficient market will ensure that all the relevant information currently known about changes in macroeconomic variables are fully reflected in current stock prices, so that investors will not be able to earn abnormal profit through prediction of the future stock
market movements.