Authors: Mrs. R. Santhiya, Dr. P. Ashok Kumar
Abstract: This study examines the multi-horizon interdependence between macroeconomic conditions and stock market volatility in two major developing economies, India and China, using annual data for the period 1991 to 2024. The analysis incorporates key macroeconomic indicators, namely Gross Domestic Product (GDP), inflation, exports, imports, and gross capital formation, together with stock market indices represented by the NIFTY 50 and SSE Composite Index. The dataset is obtained from the World Bank DataBank and investing.com, ensuring consistency and reliability across countries. The study adopts a comprehensive econometric framework by first applying Unit Root tests to determine the stationarity properties of the variables, followed by the Johansen Cointegration test to examine the existence of long-run equilibrium relationships between macroeconomic fundamentals and stock market movements. The Vector Error Correction Model (VECM) is subsequently employed to capture both short-run dynamics and long-run adjustments. To further explore time-varying interactions across different frequencies and investment horizons, Wavelet Coherency Analysis is utilized to identify co-movements, lead–lag relationships, and volatility transmission mechanisms between macroeconomic factors and stock markets. The findings are expected to reveal significant long-run integration and heterogeneous time-frequency dependencies, with GDP, trade activities, and capital formation exerting stronger influences over medium- and long-term horizons, while inflation predominantly affects short-term volatility. The study contributes to the literature by providing comparative evidence on macro-financial linkages in developing economies and offers valuable implications for policymakers, investors, and financial market regulators.
DOI: http://doi.org/10.5281/zenodo.20760756
