The Impact of Macroeconomic Variables on Stock Price: An ARDL Approach to Sri Lanka

The study investigates the impact of macroeconomic variables on stock prices in Sri Lanka by analyzing the monthly data from January 2001 – December 2020. ARDL bounds testing approach is applied to check the long-run relationship between macroeconomic variables and stock price. Error correction version of the ARDL model was used to identify the short-run relationship between macroeconomic variables and stock price. The findings suggest that stock price in long term is significantly affected by the consumer price index and Treasury bill rate. In the short run, all variables are insignificant except the Treasury bill rate which is negatively related to the stock price. The government should consider the stock price and these macroeconomic variables when implementing government policies such as privatization, foreign exchange control and monetary policy.