Abstract

This study examines the performance of the Dhaka Stock Exchange (DSE) from January 2015 to December 2024 and empirically analyzes the implications for key macroeconomic variables, including interest rates, inflation, and exchange rates. The analysis uses monthly data from Bangladesh Bank and employs time-series econometric methods, including unit root tests, Johansen cointegration tests, vector error correction models (VECMs), and Granger causality tests. The results show that all variables are integrated of order one and indicate a single long-run cointegrating relationship. Interest rates have a substantial negative long-term impact on the DSE index, consistent with theoretical predictions that higher borrowing and opportunity costs depress equity prices. Conversely, inflation and exchange rates do not exhibit statistically significant long-term effects; however, short-term dynamics indicate that inflation positively influences the index, perhaps due to speculative market behavior. Granger causality tests establish bidirectional causality between interest rates and the DSE index, while inflation is found to affect exchange rates. These results underscore the DSE's inefficiency, in which macroeconomic shocks may exert delayed or exacerbated impacts on pricing. The research offers practical insights for investors, policymakers, and regulators, including the importance of monetary policy coordination and enhanced market efficiency in Bangladesh.