Megha Project

Subject: Research Methodology

Topic: Impact of Economic indicators on financial market

Prepared By:
Ravi Bhatt (24B3M009)
Vishal Gupta (24B3M029)
Rajkumar Gupta (24B3M028)

Submitted to:
Dr.Sourabh Jain

Programme:
MBA-2

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The Effect of Economic
Indicators on financial Market

Abstract
This study focuses on influence of economic indicators on financial market the study sought to establish
the effect of GDP, interest rate, import export, currency rates, other countries Sensex and global Sensex.
The research design adopted to descriptive research design. the target population all student and staff of
private education institutions. simple random sampling technique used for the data collection. data was
collected for all structure with the help of likert scales. in which we use online method of data collection.
Statistical method used for the data analysis and coding in this research we will find correlation and
regression analysis was done to establish the relationship between economic and financial sectors. Data
is a presented in the form of table, charts and graphs. in this we use hypothesis analysis to find out Do
economic indicators really have an impact on financial market.

Keywords
Interest rates, Inflation, Unemployement, Exchange rates, GDP, Economic indicators, Import,
Export

Introduction
Financial services are very important for the smooth functioning of an economy. Without them, people
who want to save money may not be able to connect with those who need to borrow. Also, without
proper financial services, people would focus too much on saving for emergencies and may not spend
much on goods and services, which can slow down economic growth. Stock markets and banks play a
major role in helping a country carry out financial transactions effectively and efficiently. In fact, the
financial sector is considered the backbone of a country's economic growth.
Important economic indicators like GDP, interest rates, currency exchange rates, imports and exports,
and employment rates help us understand the health of a country's economy. These indicators affect the
financial sector and show how strong or weak a country’s economy is. For example, countries like the
United States have strong and stable financial systems, which help them remain powerful on the world
stage.
India is a developing country. If it wants to become a developed country in the future, it must improve
both its financial and economic sectors. To understand this better, we will conduct a study by collecting
opinions from students who are currently studying at the undergraduate and graduate levels. These
students have a basic knowledge of finance and economics. Their responses will help us understand how
financial growth, the financial sector, and economic indicators are connected. This research can be useful
to find areas where India needs improvement and help in achieving the goal of becoming a $5 trillion
economy.

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Economic Indictors
1.Gross Domestic Product (GDP):
Gross Domestic Product (GDP) represents the total value of all goods and services produced within a
country over a specific period, usually one year. It is a key indicator used to measure the overall
economic health of a nation. When GDP increases, it indicates economic growth, higher business
activity, and more employment opportunities. On the other hand, a decline in GDP may suggest an
economic slowdown or recession. GDP also helps in comparing the economic performance of different
countries.
2. Consumer Price Index (CPI):
The Consumer Price Index (CPI) measures the average change in prices of commonly purchased goods
and services such as food, clothing, transportation, and housing. It is used to track inflation over time. An
increase in CPI means that prices are rising, which decreases the purchasing power of money. High
inflation can affect the cost of living and reduce consumer spending. Policymakers use CPI to decide on
economic actions like adjusting interest rates.
3. Interest Rates:
Interest rates are the cost of borrowing money, usually expressed as a percentage of the loan amount.
They play a crucial role in influencing consumer spending, saving, and business investments. When
interest rates are high, loans become expensive, which can reduce borrowing and spending. When
interest rates are low, borrowing becomes cheaper, encouraging economic activity. Central banks adjust
interest rates to control inflation and stabilize the economy.
4. Currency Exchange Rates:
Currency exchange rates indicate the value of one country’s currency in relation to another, such as 1
USD being equal to 83 INR. These rates influence international trade, tourism, and investments. A strong
domestic currency makes imports cheaper but can reduce export competitiveness. A weaker currency
helps boost exports but can make imports more expensive. Exchange rates are affected by inflation,
interest rates, trade balances, and political stability.
5. Imports and Exports:
Imports refer to goods and services that a country buys from other nations, while exports are those it sells
to other countries. A healthy balance between imports and exports supports economic stability. If a
country exports more than it imports, it enjoys a trade surplus, which contributes positively to the
economy. However, a trade deficit occurs when imports exceed exports, which can harm national
income. Strong export performance leads to job creation and increased national revenue.
6. Employment Rate:
The employment rate reflects the percentage of people who are currently working out of the total
working-age population. A high employment rate indicates a strong and stable economy where people
have access to jobs and income. It also boosts consumer spending and government tax revenues. Low
employment rates, however, lead to reduced economic activity and can cause poverty and social issues.
Governments aim to maintain high employment through various economic policies.
7. Other Nations' Stock Markets:
The performance of stock markets in major economies such as the United States, China, or Europe can
influence investor sentiment worldwide. A strong performance in these markets can boost global investor
confidence and lead to increased foreign investments in developing countries. Conversely, a drop in

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global stock markets can cause fear and reduce investment inflows. Stock markets reflect economic
expectations and play a key role in business growth and financial stability.

Literature review
Researcher have gone through intensive literature reading and have gathered information on
different dimensions of employer branding.

Author Year Title of Research Dimensions

Martin Svoboda 2006 Impact of economic GDP, Interst rates, Inflation, Exchange rates,
Indicators on financial Unemployment
Market

Dontas pilinkus 2010 Macroeconomic Indicators Stock market index, Macroeconomic indictor,
and their impact on stock Health and Direction of economy, corporate
market in long and short run performance

Stephany Griffith 2013 Finncial stability and econom- Financial depth, Aggregate dynamics, Finan-
Jones ic performance cial stability, Banks

Gregekpung and 2013 The impact of Capital market Capital market, economic growth, stock
okoro on economic growth exchange, market capitalization, equity
Index

Whelsy Boungou 2022 The impact of the 2022 Stock market, policy news, market clarity,
And Alhonita Yatie Ukrain-russia war on world market volatility, uncertainity, Human
market returns Classification

Scott R. Barker 2022 What Triggers Stock jumps Stock market liquidity, volatility, Exchange
Macro Sammond rates, Market factor, Stock index

Shahid Ahmed 2008 Aggregate economic variable Forign direct investment, money supply,
And stock market in india Variance decomposition, Impulse response
Function

Victor chang 2018 An innovative neural network Economic activity, Event study method, stock
Weiewi Lin approach for stock market market

Significance of the study

The impact of economic indicators on the financial market lies in understanding how key
macroeconomic data points influence investor behavior, market trends, and financial decision-making.
This study is significant as it sheds light on the relationship between major economic indicators—such
as inflation, interest rates, GDP growth, and unemployment rates—and the performance of financial
markets. Understanding these dynamics is crucial for various stakeholders. It helps in making informed
investment decisions by anticipating market movements based on economic reports. Provides a
framework to interpret market reactions to economic data, improving forecasting models and risk
assessment strategies. Contributes to the existing body of knowledge on financial market behavior and

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macroeconomic theory. Ultimately, this study contributes to a more predictable and transparent
financial environment, promoting economic growth and stability.

Research Gap

From studies conducted by various researchers, we have found number of dimensions supporting our
study. The researchers have founded out some fimensions to continue the study asdimensions are not
covered specifically for any in depth study which claims to be a gap in research. The authors have
founded out relationship between these dimension with unemployment and inflation rate.

1. Limited Focus on Emerging Markets: Most existing research primarily focuses on developed
economies such as the U.S. or the Eurozone. There is limited empirical evidence on how
economic indicators impact financial markets in emerging or frontier markets, where market
dynamics and investor behavior may differ significantly.
2. Short-Term vs. Long-Term Effects: Much of the existing literature emphasizes the short-term
reactions of financial markets to economic news. However, there is a lack of comprehensive
analysis on the long-term impacts of sustained changes in economic indicators.
3. Global Interconnectivity: In an increasingly globalized financial system, economic indicators
from one country can influence markets elsewhere. However, studies often isolate individual
markets without considering global spillover effects.
4. Data Frequency and Timeliness: There’s limited research on how the frequency and timing of
economic data releases influence market volatility and trading strategies, especially with the
rise of algorithmic trading and real-time news analytics.
5. Technological and Structural Changes: The rise of digital economies, fintech, and algorithmic
trading has transformed how markets operate. Most current models have not adequately
incorporated these structural shifts, leading to gaps in relevance and accuracy.
6. Stock market index: While macroeconomic indicators are known to affect stock indices, the
relative impact of different indicators (e.g., inflation vs. interest rates) is still debated, especially
across different market environments and economic cycles.
7. Capital Market: Much of the existing literature on capital market efficiency focuses on
developed economies, leaving a gap in understanding how emerging and frontier markets
function, especially in terms of transparency, liquidity, and investor protection.
8. Money Supply: Traditional models often assume a stable relationship between money supply
and inflation or GDP. However, in recent decades—especially in low-interest environments—the
effectiveness of money supply as a monetary policy tool has been questioned, and research on
this evolving dynamic remains limited.

Objective
The main objective of the study to determine the In France influence of economic and indicators on
financial market further the study has also focused on the relationship between economic indicators and
financial institutions performance.
 To identify the dimension of influence of economic indicators and financial sector.
 Explore about the top explore about the financial sectors and economic indicators
 Describe the dimension of economic indicators.

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Hypothesis
H0 : There is no positively relationship between economic indicator and financial sector performance
H1 : There is positively relations between economic indicator and financial sector Performance.
H11 : There is significant relationship between economic growth and stock market.
H12: There is significant relationship between exchange rate and interst rate.
H13: There is significant relationship between market structure and financial integration.
H14: There is significant relationship between pandemic and global economy.
H15: There is significant relationship between foreign direct investment and interest rate.
H16: There is significant relationship between money supply change and interest rate.
H17: There is significant relationship between stock return and market volume.
H18: There is significant relationship between COVID-19 and stock market index.
H19: There is significant relationship between equity index and stock market index.
H20: There is significant relationship between federal reserve policies and inflation rate.

Research Methodology

Area of study Respondents are taken from private Academic institution in India

Research Design Quantitative Research Design using a descriptive and causal-

Comparative approach is preferred.
Sample Size 80 (60 is the standard size according to researcher at 95%
Confidence interval)
Sampling Technique Convenience and Simple Random Sampling.
Data Collection Primary data collected through a structured questionnaire.
Secondary data collected through sources as journal, references etc.
Data Analysis Tools SPSS, Regression, Correlation, Time-Series Analysis

Data Analysis
Descriptive Analysis
Table 1 represents the descriptive analysis of the dimentions of financial market.

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Table 1.
Items Mean SD

Age Group 22.19 3.86

Inflation Rate 5.60 2.35
Debt-to-GDP Ratio 66.53 9.35
Literacy Rate 1.80 0.64
GDP growth rate 2.64 1.10
Interest rate 2.78 0.89
Stock market return 2.16 0.60
Stock market growth 2.67 0.95
Aggregate market dynamics 2.32 0.77
Current reserve policies 1.25 0.79

Note: Represents the demographic analysis of the respondents.

Testing of Hypothesis
H0 : There is no significant relationship between dimensions of capital market and financial
sector performance
H1 : There is significant relations between economic indicator and financial sector
Performance.
H11 : There is significant relationship between economic growth and stock market.
H12: There is significant relationship between exchange rate and interst rate.
H13: There is significant relationship between market structure and financial integration.
H14: There is significant relationship between pandemic and global economy.
H15: There is significant relationship between foreign direct investment and interest rate.
H16: There is significant relationship between money supply change and interest rate.
H17: There is significant relationship between stock return and market volume.
H18: There is significant relationship between COVID-19 and stock market index.
H19: There is significant relationship between equity index and stock market index.
H20: There is significant relationship between federal reserve policies and inflation rate.

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Table 2.

Hypothesis Description Test Used p-value Bonferroni Result

Alpha(0.005)

H11 GDP VS Stock Pearson 0.002 0.005 Significant

Market Correlation

H12 Exchange Rate Linear 0.015 0.005 Not Significant

VS Interest Rate Regression

H13 Market Sructure ANOVA 0.004 0.005 Significant

VS Financial integ-

ration

H14 Pandemic VS Global Chi-square 0.020 0.005 Not Significant

Economy

H15 FDI VS Interest Rate Pearson 0.012 0.005 Not Significant

Correlation

H16 Monet Supply Regression 0.008 0.005 Not Significant

Change VS Interest

Rate

H17 Stock Return VS Pearson 0.003 0.005 Significant

Market Volume Correlation

H18 Stock Market VS Pearson 0.006 0.005 Not Significant

Equity Index Correlation

H19 COVID-19 VS Stock Regression 0.001 0.005 Significant

Market Index

H20 Federal Reserve VS Regression 0.010 0.005 Not Significant

Inflation Rate

Correlation Results

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Table 2 explains correlation analysis which shows that there is a positive relation between
dimensions of financial market and economic indicator. The research analysis shows that the
dimensions that could affect the financial market are GDP and stock market (0.002), FDI and
interest rates(0.012), Stock return and market volume(0.003), Equity and stock
market index(0.006). The analysis shown that all the dimensions are statistically
significant at (p<0.5). It shows positive and negative impact on indicators for
getting a significance results.

Regression and ANOVA Analysis

Above table shows that analysis of variable is exchange and interest
rate(0.015), Money supply change and interest rate(0.08), stock market
index and COVID-19(0.001), inflation rate and feral reserve policies(0.010).
The results are justified (i.e., the null hypothesis is rejected and alternative
hypothesis accepted),which means there is a positive significance impact of
financial market . The figure shows that the points spread around diagonal
line are in the direction of regression.

Finding and Suggestions

From above research, it is clearly shows that there is a strong relationship between dimensions of
economic growth and interest rate. The analysis revealed a strong inverse relationship between interest
rate changes and stock market performance. When interest rates increased, stock indices typically
declined, indicating reduced investor confidence and higher borrowing costs. A positive correlation was
found between GDP growth and stock market performance. Periods of higher GDP growth were
generally associated with bullish market trends. Financial markets showed immediate responses to
some indicators (like interest rate announcements) but delayed reactions to others (like GDP reports),
suggesting different levels of market sensitivity. Higher unemployment rates corresponded with weaker

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market performance, highlighting investor concerns about lower consumer demand and economic
slowdown.
For investors regularly monitor key economic indicators and consider their historical impact on the
market when making investment decisions. Use macroeconomic data to guide sector-specific
investments. Policymakers maintain transparency and consistency in economic reporting and policy
decisions, as markets respond strongly to uncertainty or surprise announcements. Financial analysts
Incorporate macroeconomic data into technical analysis and forecasting models to improve accuracy
and strategic planning. Explore the role of behavioural finance in market reactions to economic
indicators, and conduct similar studies in emerging markets for broader global insights. Encourage the
integration of real-time economic data analysis into finance and economics curricula to help students
better understand market behaviour.

Conclusion
This study aimed to examine the impact of key economic indicators—such as interest rates, inflation,
GDP growth, and unemployment—on the performance of financial markets. Based on the quantitative
analysis conducted over the selected period, several important conclusions can be drawn. Firstly, the
findings confirm that economic indicators play a significant role in influencing investor sentiment and
market movements. Among these, interest rates emerged as one of the most impactful variables, with
increases in rates often leading to a decline in market performance due to higher borrowing costs and a
shift away from equities to fixed-income securities. Secondly, inflation showed a dual effect. While
moderate inflation typically signalled healthy economic activity and had a neutral to slightly positive
influence on markets, high inflation levels were associated with declining investor confidence, reduced
purchasing power, and overall market volatility. In conclusion, this research underlines the critical
importance of macroeconomic indicators in shaping financial market behaviour. For investors, analysts,
and policymakers, staying informed about these indicators is essential for making sound financial and
economic decisions. Additionally, the study supports the need for continuous research, especially
considering evolving market dynamics, technological changes, and the increasing role of global events in
shaping local financial markets.

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