A Study on Determinants Affecting BSE Sensex in India: A Macroeconomic Approach

K. S. Bhanu¹ , A. R. Pali²

Section:Research Paper, Product Type: Isroset-Journal
Vol.6 , Issue.2 , pp.113-123, Apr-2019

CrossRef-DOI:   https://doi.org/10.26438/ijsrmss/v6i2.113123

Online published on Apr 30, 2019

Copyright © K. S. Bhanu, A. R. Pali . This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
 

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Abstract :
The Bombay Stock Exchange (BSE) is the largest securities market in India. The stock market, being one of the prime avenues for investments, is an important indicator of the Indian economy. Hence, it becomes important to study the factors that affect it. BSE Sensitive Index (Sensex), though sensitive to many economic factors is still a vital phenomenon for Indian market. We have tried to examine the primary factors responsible for affecting Bombay Stock Exchange (BSE) in India. We have considered the following determinants in our study: Crude oil price, Wholesale price index (Inflation), Exchange rate, Foreign Exchange Reserve (Forex), Repo rate, Foreign Domestic Investment (FDI), Call money rate, FII (Foreign Institutional Investor) Investment and Gold price. We have carried out a retrospective study and identified the major factors influencing BSE Sensex using Multiple Linear Regression, Variable Selection and Variance Reduction techniques and tried to establish a model for BSE Sensex based on the prime factors affecting it. Finally, we have tried to improve our model by solving the problem of multicollinearity using Ridge Regression method and obtained an optimal model of BSE Sensex for future prediction.

Key-Words / Index Term :
Bombay Stock Exchange, BSE Sensex, Multicollinearity, Multiple Linear Regression, Ridge Regression, Variable Selection

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