On the Relationship Between Macroeconomic Factors and S&PBSEAuto Index: An ARDL Approach

Abstract

This study aims to explore the relationship between selected macroeco nomic variables and the S&P BSE Auto index between January 2017 and August 2019, when the automotive industry in India recorded its biggest slump in sales. Using monthly time-series data, the present study employs an autoregressive dis tributed lag (ARDL) approach to co-integration. The results show that there is evidence of a long-run co-integrating and negative relationship between the exchange rate and the S&P BSE Auto index. However, in the short run, lagged values of the auto index and crude oil price are found to have significant influences on the S&P BSE Auto index. Moreover, the error correction term (ECT) which indicates the short-run adjustment process is found to be negative and statistically significant. The study concludes that the S&P BSE Auto index can be predicted by the exchange rate (USD/INR) in the long run. However, in the short run, it can be predicted by the lagged values of crude oil price. Inconsistent with the existing literature, the association between lagged values of crude oil price and the S&P BSE Auto index is found to be positive. Results from this study have important implica tions for researchers, corporations, investors, portfolio managers, and governments alike.