An empirical analysis of impact of banking sector on Indian stock market
Journal of Economic and Administrative Sciences
ISSN: 1026-4116
Article publication date: 8 August 2022
Abstract
Purpose
This study attempts to examine the relationship between the banking sector and stock market development in India.
Design/methodology/approach
To analyze the relationship between banks and stock market development, the ratio of stock market capitalization to GDP is proxied by stock market development. The determinants of the stock market development are used for analysis namely domestic credit to the private sector as a ratio of GDP is used as a proxy for the development of banks, saving rate, per capita real GDP, and inflation. The autoregressive distributed lag (ARDL)-Bounds testing approach is used for the analysis. The paper also used the unrestricted error correction model and CUSUM and CUSUM square test to check the stability of the model.
Findings
The ARDL bounds test found that there is a long-run relationship between stock market development and bank-centered financial development. The results also revealed that the stock market is positively influenced by the development of banks, savings, and per capita real GDP in the short-run as well as long-run.
Research limitations/implications
This paper suggests that improvement of banking sector plays an important role to increase liquidity of the capital market development in India. This paper also suggests that the economic growth and savings rate have positive impact to induce the capital market growth in both short run and long run.
Originality/value
The study has investigated the empirical relationship between the banking sector and the stock market development in a different methodological approach by using an ARDL model which is appropriate for a small sample size. There are few studies related to bank-centered financial development and stock market development in the context of India.
Keywords
Acknowledgements
The authors would like to thank the two anonymous referees and the editor of this journal for invaluable comments/suggestions on earlier versions of this paper, which have improved the quality of this paper substantially. The usual disclaimer applies.
Citation
Pradhan, K. and Kumar, V. (2022), "An empirical analysis of impact of banking sector on Indian stock market", Journal of Economic and Administrative Sciences, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JEAS-05-2022-0125
Publisher
:Emerald Publishing Limited
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