Impact of Macroeconomic Variables on Islamic Stock Market Returns : Evidence From Nifty 50 Shariah Index

The present paper tries to establish the impact of various macroeconomic variables on the performance of the Islamic stock market for India. Compatible with the Efficient Market Hypothesis (EMH), a number of macroeconomic variables have been documented to impact the performance of the stock market. The Arbitrage Pricing Theory (APT) laid the theoretical basis for the relationship between stock returns and macroeconomic variables which has been later on empirically tested by a large number of studies. We have used the Ordinary Least Square (OLS) Regression to study the impact of macroeconomic variables including inflation, industrial production, exchange rate, interest rates and money supply on the Islamic stock returns. The various diagnostic tests including the Breusch-Godfray Serial Correlation Lagrange Multiplier (LM) test, the Breusch-Pagan-Godfray test and the Jarque-Berra test have been used to check whether the residuals of OLS are pure white noise. The findings of our study suggest that exchange rate and interest rates have a significant impact on the Islamic stock market. The implications of the study are that exchange rates and interest rates should be controlled so as to improve the performance of the Islamic stock market in India