A Overview Che Guevara History Essay

A Overview Che Guevara History Essay The principal subject of historical debate surrounding Che Guevara is whether or not he succeeded as a revolutionary. The debate can become quite implausible as some regard him as a folk hero of mythical proportions. There is a sense of irony in that Guevara has become worldwide fascination as a commercial product, although Guevaras motive for the revolutionary uprising was to conquer capitalism. This thesis will argue the ways in which Guevaras legacy has been received and interpreted (listed below), as well as identifying the origins of his profound popularity. Description of Preliminary Research and Research Intentions: Main areas or issues you plan to discuss in your essay The overall focus is the interpretation of Che Guevara and his legacy over time. With this, the main topics of the debate are: The life of Che Guevara was one of controversy and thereby one must place emphasis into questioning the significance he holds in the pantheon of international revolutionary heroes and ideals. Herewith, the historian must evaluate Guevaras success from a political/empiricist perspective. The complete commitment to the revolutionary struggle to create a new man and a just/social order that continues to inspire those who struggle against social injustice. With this, one must investigate how these ideals impact on the post-Guevara population of modern-day society. To do this the historian must evaluate Guevaras success from a social perspective. Guevara has become a popular symbol while his image is too often dissociated from the legend that built it. With this, one must evaluate how and why his image has become a dominant face of contemporary popular culture. In relation to this debate, Guevara has ironically become an important image for money-wielding capitalists. Therefore, the historian must evaluate Guevaras success from a determinist/economic perspective. Project Synopsis The thesis explores specifically whether or not Che Guevara succeeded as a political revolutionary and a powerful icon in contemporary popular culture after his death. Guevaras life provides a significant historical debate as Guevara has often been criticised as a murderer, a hypocrite and a failure. His attempt to unite several Latin-American nations under a communist rule was unsuccessful, although he is often regarded as a hero to many of the inhabitants of these countries. The precise thesis question to be focused on is Evaluate the changing views on Ernesto Che Guevaras success and legacy following his death in 1967 to the present day. This question was developed as an investigation into how and why Guevara obtained an iconic status in society, and whether or not he is regarded as being a success or a failure. Originally, this question focused only on Guevaras failed attempt of uniting Latin-American nations and placed an inquiry into why Guevara became so popular. Through thorough research and academic critique, it was discovered that there were more sophisticated elements to the thesis question. The life of Che Guevara was one of controversy and thereby one must place emphasis into questioning the significance he holds in the pantheon of international revolutionary heroes and ideals. Guevara made a complete commitment to the revolutionary struggle to create a new man and a just/social order that continues to inspire those who struggle against social injustice. Herewith, one must investigate how these ideals impact on the post-Guevara population of modern-day society. Guevara has also become a popular symbol while his image is too often dissociated from the legend that built it. With this, one must evaluate how and why his image has become a dominant face of contemporary popular culture, as well as the face of marketisation. Different historians have produced varying answers to the specific question. In the thesis, the strength of these claims is explored in an attempt to resolve the issue of whether Guevara succeeded or not, but the sources themselves their motivation, influences and perspective are also explored to ensure that the different historical perspectives are not simply described, but evaluated. This focus question is resultantly a mix of history and historiography. Project Essay Ernesto Che Guevara remains a potent iconic presence in society, with his life the subject of new biographies, his visage on T-shirts, and his highly-regarded influence in the political spectrum. The Argentinean-born guerilla leader who helped Fidel Castro seize power in Cuba in 1959 remains one of the few unsullied heroes available to the political left. His thoughts (as evidenced in his book, Guerilla Warfare) on revolutionary strategy, bureaucracy, education, economics, the role of the party, internationalism, attitude to work and democratic centralism have been regarded as the force behind the Latin-American Revolutions. Guevara had an indomitable belief in the worth of education and was self-taught in economics and Marxism. Marxs concept that it is not enough to interpret the world, it must be transformed was at the heart of Guevaras life. Guevara strongly believed that key analytical concepts must be adapted and modified by practice. Guevara felt that the struggle against capitalism and the construction of a new socialist society required a new type of human being who would be willing to make personal sacrifices for the well-being of others. Historian Richard Harris states, His life as a revolutionary was a success as evidenced by the continuing significance he holds in the pantheon of international revolutionary heroes and ideals. The example he set of complete commitment to the revolutionary struggle to create a new man, freed from his alienation, educated and ready to struggle every day for his liberty and a just social/international order continues to inspire those who struggle against social injustice and oppression and seek to create a new social order based on the ideals of socialism. In this context, Che has in death succeeded more than he ever could have imagined  [1]  . Historian Siles del Valle argues rather convincingly that Guevaras views on the new man motivated him, his comrades and the young B olivian revolutionaries who followed in their footsteps a few years later to sacrifice their lives for a new society and a new kind of human being. Many of the adherents of this theology of the new man established close links with popular revolutionary movements throughout the region. In Bolivia, after the failure of Guerillas guerilla movement, and in other countries such as Chile, Brazil and Peru, the most progressive sectors of the church, influenced by the ideals of liberation theology, associated themselves with Marxist and neo-Marxist revolutionary movements. In Bolivia, this tendency resulted in the participation of certain younger members of the Christian Democratic Party in a revolutionary guerilla movement that attempted to establish a base of operations in 1970 around the mining town of Teoponte, north of the capital of La Paz  [2]  . Although the idea of guerilla warfare was no longer accepted as a viable form of resistance to the military regime at the time, important elements within the Bolivian people began to idealize and even venerate the guerillas. Historian Siles de Valle illustrates the importance of how Guevaras death, his concept of the new man, the ideals of liberation theology, and the political movements inspired by Guevaras example have influenced Bolivian popular literature and politics right up to the present  [3]  . This influence is evident in that the first indigenous president of Bolivia, Evo Morales, is said to be re-launching Guevaras project of a peasants revolution in the country. Morales stated that he admires Guevara because, he fought for equality and for justice. He did not just care for ordinary people; he made their struggle his own.  [4]   The Deputy Assistant Secretary of Defense for Western Hemisphere affairs, Roger Pardo-Maurer IV, states, You have a revolution going on in Bolivia, a revolution that potentially could have consequences as far-reaching as the Cuban revolution of 1959. What is going on in Bolivia today could have repercussions in Latin America and elsewhere that you could be dealing with for the rest of your lives. Che Guevara sought to ignite a war based on igniting a peasant revolutionà ¢Ã¢â€š ¬Ã‚ ¦ This project is back  [5]  . Herewith, Evo Morales could become the countrys first authentically politically leftist president. In contrast, Historian Jay Mallin provides the argument that Guevaras influence was ineffective in Bolivia. He states that, charisma is never enough when it comes to leftist movements. The fate of Che Guevara, who failed to foment a Latin American revolution and left no coherent societal model behind for his followers, should have taught us that already.  [6]   Mallin also believes that Guevara had no purpose to be in Bolivia. Mallin affirms that, the peasants displayed little or no interest in aiding him [Guevara]  [7]  . During the 1950s, Bolivia had undertaken agrarian reform, and most of the peasants now owned their own land. A high-ranking Bolivian official commented: What could Che offer them? Cabinet posts? Mallins comment indicates that although Guevara was attempting to eradicate the alienation of the individuals on behalf of the population, the peasant majority perceived him as worthless as they had already been benefiting from the capitalists agrarian reform scheme s. Mallin considers Guevara to be a failure due to the fact that he was a leading theoretician and advocate of guerilla warfare, but he failed in an attempt to apply his own doctrines  [8]  . Since Castro came to power in 1959, he and Guevara had launched or encouraged more than a dozen guerilla operations throughout Latin America. Not one of these has succeeded in overthrowing a government; several have been wiped out completely; and some still splutter along  [9]  . Although much criticism of Guevara and his legacy emanates from the political center and right, there has also been criticism from other political groups such as anarchists and civil libertarians, Bolivian officials and right-wing conservatives, some of whom considered Guevara an authoritarian, anti-working-class Stalinist, whose goal was the creation of a more bureaucratic state-Stalinist regime. Mallins irrefutable argument is that Guevara was a man of considerable capabilities, but he chose to employ these talents in pursuit of violence as a means to a political end  [10]  . A doctor by profession, Guevara chose not to serve humanity selflessly, but rather to serve communism selflessly. And this indeed he did, relinquishing power and position in order to begin, literally, from scratch once again, to risk his life a new time in obedience to his tortured ideas. Therefore, Guevara can be considered a failure when evaluating his legacy within a political context. Although his attempt at unifying the Latin American nations provided him with an iconic status, the contemporary effort by politicians to follow in Guevaras footsteps has been deemed unsuccessful (except for Cuba as it still survives and was a critical reason for the Bay of Pigs Invasion in 1961  [11]  ), especially with the Bolivian president Evo Morales, who has little hope of fulfilling the expectations of h is followers. Called the most complete human being of our age by the French philosopher Jean-Paul Sartre, Guevaras supporters believe he may yet prove to be the most important thinker and activist in Latin America since Simon Bolivar  [12]  . The most important factor of Guevaras legacy after his death was his status as a popular icon, symbolizing revolution and left-wing political ideals among youngsters in Western and Middle Eastern Cultures. A dramatic photograph of Guevara taken by photographer Alberto Korda soon became one of the centurys most recognizable images, and the portrait was simplified and reproduced on a vast array of merchandise, such as T-shirts, posters, coffee mugs and baseball caps. When Guevara died, millions mourned his passing. Poets and philosophers wrote impassioned eulogies to him, musicians composed tributes, and painters rendered his portrait in a myriad of heroic poses. Marxist guerillas in Asia, Africa and Latin America anxious to revolutionize their societies held his banner aloft as they went into battle. And, as the youth in the United States and Western Europe rose up against the established order over the Vietnam War, racial prejudice, and social orthodoxy, Guevaras defiant visage became the ultimate icon of their fervent protest on influencing government policies. Guevaras body might have vanished, but his spirit has lived on; Guevara was nowhere and everywhere at once  [13]  . As Jorge Castaneda so aptly states in his evaluation of Guevara, Many of us today owe the few attractive and redeeming features of our daily existence to the sixties, and Che Guevara personifies the era, if not the traits, better than anyone  [14]  . Latin-American Historians Castaneda, Anderson and Taibo examine the extent to which Guevara was committed to both fomenting socialist revolution on a truly international scale and personally putting into practice his thesis that it was possible for a small but committed guerrilla fighting force to ignite a full-scale popular revolution in Latin-American nations saddled by oppressive regimes and U.S. imperialism. His commitment to these beliefs was shared by most of his closest friends and comrades as well as many admirers and sympathizers around the world. Guevara exemplified the principles of individual sacrifice, honesty, dedication to cause, and personal conviction in his beliefs. In fact, the example he created by the way he lived his life and met his death has transcended time and ideology to nurture and inspire new generations of fighters and dreamers  [15]  . Guevaras defiant visage, as Anderson believes, has become the ultimate icon of revolutionary spirit and commitment in the late twentieth century  [16]  . Guevara was truly a man who died for his beliefs, and because of his almost mythical self-sacrifice for his revolutionary ideals he has been the single most important figure of veneration for revolutionaries and guerilla fighters around the world. Historian Castaneda links Guevaras legacy to what he sees as the legacy of the international youth revolt that took place in the 1960s: à ¢Ã¢â€š ¬Ã‚ ¦This is the lasting legacy of that decade. It is also what made Guevara the perfect fit, the supreme emblem of that cultural revolt a man whose politics were conventional but whose attitude toward power and politics attained epic and unique dimensionsà ¢Ã¢â€š ¬Ã‚ ¦Ã‚  [17]   This component of Guevaras legacy can be evidenced through the increased involvement of the New Left youth revolts during the 1960s. The New Left sought to modify, rather than overthrow capitalism. It sought to make capitalism more inclusive and better share the massive wealth the United States enjoyed in the postwar period making the New Left relevant as this was a constituent of Guevaras ideologies. Castaneda supports his argument by stating that Che can be foundà ¢Ã¢â€š ¬Ã‚ ¦in the niches reserved for cultural icons, for symbols of social uprisings that fi lter down deep into the soil of society,  [18]   but while there is truth in this assertion it is also clear that Guevaras legacy is greater than this. Bolivian literature, as exemplified by Harris, is testimony to the influence on Bolivian society of Ches guerilla mission and death  [19]  . Though he is seen by many as a hero, opponents of Guevara, including Cuban exiles, think of him as a killer and terrorist. They point to what they see as the less savoury aspects of Guevaras life, taking the viewpoint that he was enthusiastic about executing opponents of the Cuban Revolution. Some of Guevaras writing is cited as evidence of this tendency, as quoted in an article by Alvaro Vargas Llosa. In his Message to the Tricontinental, Llosa writes of hatred as an element of struggle; unbending hatred for the enemy, which pushes a human being beyond his natural limitations, making him into an effective, violent, selective, and cold-blooded killing machine.  [20]   Critics in the United States assert that Che Guevara was responsible for the torture and execution of hundreds of people in Cuban prisons, and the murder of many more peasants in the regions controlled or visited by his guerilla forces. Contrary to Guevara supporters, these critics also argue that Guevara was a blundering tactician with no recorded combat victories. While supporters point to the Battle of Santa Clara as a major victory of Guevara, historian Alvaro Vargas Llosa writes, his greatest military achievement in the fight against Batista taking the city of Santa Clara after ambushing a train with heavy reinforcements is seriously disputed. Numerous testimonies indicate that the commander of the train surrendered in advance, perhaps after taking bribes. They believe that Guevara murdered individuals on dubious grounds and took their property, seized private manors for himself, and distributed property among communist bureaucrats rather than the peasants. The critics also st ate that he helped institute forced labour camps when communist volunteerism had failed. Herewith, his social legacy has proven to be notorious as early followers of Guevara have had to transcend hate in order to be attain freedom. A corresponding element of Guevaras legacy is his success and veneration within an economic context. Guevara believed that the revolutionary regime needed to promote the development among Cubas working class of a new communist consciousness based on moral rather than material incentives. He also believed strongly that the regime needed to adopt a centralised budgetary system for the equitable allocation of resources between different sectors of the economy in order to build socialism in Cubas corrupt and underdeveloped economy  [21]  . He was vehemently opposed to what has today become the market strategy in the remaining few socialist countries marketisation, material incentives, and enterprise financial self-management. Anderson believes that Guevaras image is lionised by commercial profiteers around the world  [22]  . Entrepreneurs have used and abused Guevaras visage in a variety of ways including ice-cream flavours, revolutionary tacos and is even the public face of Cub a in relation to tourism. Although Guevaras Marxist and economic ideologies were systematic and meticulous, he failed at managing the Cuban economy, as he oversaw the near-collapse of sugar production, the failure of industrialisation, and the introduction of rationing. In a broader sense, some critics, such as Che-Mart (author unknown), have merchandised their dislike of Guevara by marketing burlesque T-shirts at both Guevara and his supporters, casting aspersions, for example, on what they perceive as an irony. The irony can be evidenced in that Guevara was a motivated communist who lived the last years of his life as a revolutionary figure, in order to abolish American capitalism throughout Latin America, but is now one of capitalisms hottest selling images. The creator of Che-mart.com has written, Che has marketed his brand name brilliantly over the years, selling to specific niche in the market: young people who have no clue what Che has done or what he stands for. The cash continues to flow as most coll ege dorms world-wide are being adorned with his face. This comment eradicates Guevaras initial purpose and ideals of a world free of capitalism. Herewith, Guevaras legacy in an economic context is an ironic one, as what he fought against for so many years has allowed market oligopolies to take advantage and use his well-known visage to achieve what entrepreneurs love most: large profit margins from effective market capitalism. The complex facets of Che Guevaras revolutionary movement have created a mixture of interpretations through the passage of time, causing a distortion in the Guevara legend. He is singled out from other revolutionaries by many young people in the West because he rejected a comfortable bourgeois background to fight for those who were deprived of political power and economic stability. However, as evidenced in the thesis, Guevara was unsuccessful in his fight against peasant exploitation and Western capitalism. It is for this reason that Guevaras legacy is considered as rather disproportionate and can be regarded as a failure, when evaluating his political and economic success as a revolutionary. Paradoxically, Guevara can be considered a success as he has become a popular symbol while his image is too often dissociated from the philosophy that built it. It is the vulnerability of Guevaras spirit that makes him a contemporary hero although he might have failed as a revolutionary, he ha s somehow retained a powerful hold on the popular imagination, seeming to transcend time and place; his legacy continues to influence not only those who were inspired by him then but also those who are discovering him today.

Hunger Artist

Franz Kafka’s â€Å"A Hunger Artist† was written in 1922. The short story is about a man who uses fasting (a form of art) as a sense of fulfillment to himself. The foods of life, were not to his liking. Furthermore, his form of fulfillment was the sight-seeing and interaction with the fans. Fans were amazed by him. His ability to starve himself inside a â€Å"†¦small barred cage†(Kafka 9) was intriguing to most; everybody wanted to see him at least once a day. The time and place of the short story is unidentified.The process of the fast would usually last up until the forty day mark. The Hunger Artist is a man who starves himself, not because he couldn’t eat; it was because he craved the attention as seen in his last moments of life, when he tells a fan â€Å"I couldn’t find the food I liked† (Kafka P. 9) meaning he couldn’t attain the satisfaction from his audience. As a reader we sense a form of confusion or darkness when readin g the text. This form of satisfaction is far from bizarre.I would say, it is safe to say that each person has a personal interest that we like to do that one may find weird. Although it may be bizarre to some people. Most people came to see the Hunger Artist; â€Å"At one time the whole town took a lively interest in the hunger artist; from day to day of his fast, the excitement mounted; everybody wanted to see him at least once a day†(Kafta 5-7). We live in a society, where â€Å"weird† sparks great interest. This was the Hunger Artists form of satisfaction, he was a attention fiend, he was fueled by the masses of people coming out to see him.We can relate this to a toddler and his older siblings. When a child does something that causes a positive reaction or response by another person (usually someone older) they tend to insist on doing it again. Why? because physcologically, the toddler feeds from this attention, very similar to the Artist. The masses of people were amazed at the Hunger Artist. His one of a kind ability, amazed children â€Å"[The] children stood open mouthed†(Kafka 14).People would come in anticipation to see this bizarre figure labeled as the â€Å"Hunger Artist. † His â€Å"palid [body] in black tights, with his ribs sticking out â€Å"(Kafta 16) were one of the many reasons why people would come with the family as a whole, to see this form of ‘entertainment’, if you will. Eventually, people who came to see the Artist in his fast, started to find this matter impossible. Fans took it so far that they felt a sense of obligation to see if the Hunger Artist was cheating or if this display was factual.Theâ€Å"watchers who sat up to the bars, [were] the ones not content with with the dim night lighting of the hall†¦they focused on him in full glare of the electric pocket torch given them by the impresario†(Kafka 47-49). We can relate this to a magician, people usually tend to see what the magician is doing to fool the spectator, but usually the spectator wont find out what the magician is doing to fool the overseer. In exchange the magician would feed off this attention and continue in his expertise, similar to the Hunger Artists’ fasting.As time went on, like most things, the Hunger Artist lost his touch and people were loosing interest in the Hunger Artist. This lack of interest came about so suddenly. For meanwhile the aforementioned change in public interest [was] set in; it seemed to happen almost overnight†¦at any rate the pampered hunger artist suddenly found himself deserted one fine day by the amusement seekers who went streaming past him to other more-favored attractions;†¦(Kafta 17-20) The fans easily forgout about the enduring Hunger Artist, and for that, he had to settle for a new location.He had to go to a circus where conditions were even harsher and people were not recognizing him anymore. No one recognized him anymore and all that h e worked for was flushed down the drain. The artist was placed in the most isolated area of the circus in the dark, opposed to the heavenly light where he once was before he relocated to the circus. Suprisingly, one day an overseer who use to see the Hunger Artist in his prime passed by. He took a peek at the cage, out of curiousity, he recognized the Hunger Artist.The Artist felt a sense of guilt that he let down the fans and his reation to the overseer was â€Å"Forgive me everybody†(Page 276). As words were exchanged between the Hunger Artist and the â€Å"overseer†, it led to the explanation of why the Hunger Artist doesn’t cherish the so called â€Å"foods of life and tended to always fast for his sense of satisfaction from the attention. If I had found [the food I liked], believe me, I should have made no fuss and stuffed myself like your or anyone else.These were his last words, but in his dimming eyes there remained the firm though no longer proud persu asion that he was still continuing to fast;†¦(Kafta 10-14). We can say the Hunger Artist only wanted the fan’s attention and he admires the appreciation of Others. The foods of life weren’t enough for him because the fan’s presense were his â€Å"nutrition†. One may question, â€Å"Why is the Hunger Artist this way? What may his childhood be like? Was he deprieved of attention as a kid?I find it quite ironic that in the last moments of the Hunger Artists life, he is last seen with an overseer. The overseer was shocked to see him and still thought he was crazy now, just like he thought he was crazy when he used to see him in his prime. This craziness is what dragged the masses in his prime to come see him in his during his time of ‘shine’ But now, that craziness has become a flaw and no one cared about him anymore. The attention he once craved has deminished.It is quite ironic that the author does this. It’s like the Kafta wants t he audience to know that in the end, even though the Hunger Artist has led to many overseers to label him as â€Å"crazy† he will still be remembered and has gained the respect of many. In the end, the Hunger Artist comes to his downfall and dies. They bury him with hay straws and he is left with what he arrived with once he was placed in the circus. It’s like the clock was ticking until his death call arrived and was replaced by a youthful black panther.Some people will never be understood in society. Some do amazing things and others do unsual things. In all honesty the Hunger Artist wasn’t looked at for his amazement. He was looked upon as unusual, but the Hunger Artist fed off this attention. People just love to be curious espically to unusual things, we like to judge people and he was judged to be crazy. All in all, it is safe to say that in us all, we seek attention, some more than others, and the Hunger Artist wanted just that. He was a attention fiend.

The Pain of Atlas Shrugged Essay Contest Topics

The Pain of Atlas Shrugged Essay Contest Topics The Ultimate Atlas Shrugged Essay Contest Topics Trick The winning first place essay could possibly be posted in its entirety on at least one of these websites with complete credit provided to the author. After the calendar year 1957 when the book was published, it received lots of criticism. The goal is to find the students to read the book and provide their knowledge of what it is that they have read. Then, when you're done with the writing part, be certain to have somebody else give your essay a fantastic proofread and edit. For one, they supply the real essays of previous winners. For whoever has read these books and feels they have a very good comprehension of what it is that they are all about, entering these essay contests is a good way to make money for college. Students lead busy lives and frequently forget about an approaching deadline. They choose to drive there. Winners are responsible to supply their mailing addresses and other necessary information below the law to be able to obtain any prizes. But that's why we have sparknotes. It will become evil if it's misused. The Bad Secret of Atlas Shrugged Essay Contest Topics Entrepreneurs give up under pressure and just a few resist the financial occupation. The company community is quite depressed and they did not understand what things to do as they need to give more than fifty percent of their earning to the government regarding taxes. Personal need and individual feelings haven't any place in the industry world. Money cannot be emplo yed to buy intelligent for someone who does not wish to be intelligent nor can it be utilized to purchase respect for the hopeless. It's a philosophical revolution told in the shape of an action thriller. A person's fundamental moral principles and ideas shape their character in addition to encourage them to take action. He approaches his art with the very same moral productiveness for a businessman. The basis of morality was regarded as a method of fighting poverty by ensuring that all citizens live equally irrespective of the capability to work or education. What an incredible story, and amazing the relevance of some elements of the story in the modern modern business an international commerce. Atlas Shrugged Essay Contest Topics - the Conspiracy It's a book that's well worth re-reading every couple of decades. Aside from the Church that has been doing what it has at all times been doing all around the world, for the inner reconstruction of somebody, no big philosopher has taken the American spiritual citadel by storm. There's a mysterious person John Galt who's also a businessman and pursuing different businessmen to abandoned their companies and don't open till they receive a positive reaction. Americans love a great redemption story. The Ideal Approach for Atlas Shrugged Essay Contest Topics Well, to begin with, putting aside all the Deep Thoughts and Profound Ideas within this book, we've got a lot of characters that are challenging the establishment. The book also confused lots of individuals. The author cleverly incorporates the character's internally consistent plan of action, her or his judgment, and the words that accompany their intentions. Kind of cool and inspiring really, no matter your opinion of their specific philosophy. Man, are you going to receive a letdown. He believes that each man is for himself and should not need to rely on other people to support them. Choosing our service, you are going to see that studying can be simple if you gain from the help of capable experts. It can be hard to juggle the demands of multiple scholarship applications, but it's absolutely paramount that you comply with all directions for each scholarship exactly. The application procedure has to be completed via an on-line medium during the official site of the contest. Even in the event the deadline is very tight, feel free to get hold of our managers. The Ultimate Atlas Shrugged Essay Contest Topics Trick The content on this website is posted with good intentions. In the event the response can be no, you're not really qualified. Laws are passed prohibiting companies from owning different businesses. It is possible to also become many discounts on our site which will help you to save some more money for futu re orders or anything you want to spend them on. For, instance, there are individuals who use money for sexual satisfaction or maybe to get favors that they do not deserve for sure services. The customer will know the purchase price of the order till they place it and ensure it is definite. No purchase required to win. After discovering our website, you will no longer will need to bother friends and family with these kinds of requests. You may choose between three topics. Google the Ayn Rand website to discover the official application page and very good luck! There'll be three topics to select from.

The Macroeconomic Forces And Stock Prices Finance Essay - Free Essay Example

Sample details Pages: 28 Words: 8501 Downloads: 3 Date added: 2017/06/26 Category Economics Essay Type Analytical essay Did you like this example? The study examines the influence of a selective set of macroeconomic forces on stock market prices in Bangladesh. The Dhaka Stock Exchange All-Share Index (DSI) is used to represent the prices in the stock market while deposit interest rates, exchange rates, consumer price index (CPI), crude oil prices and broad money supply (M2) are selected to represent the macroeconomic variables affecting the stock prices. Using monthly data from 1992m1-2011m6, several time-series techniques were used which include Cointegration, Vector Error Correction Model (VECM), Impulse Response Functions (IRF) and Variance Decompositions (VDC). Don’t waste time! Our writers will create an original "The Macroeconomic Forces And Stock Prices Finance Essay" essay for you Create order Cointegration analysis, along with the VECM, suggests that interest rates, crude oil prices and money supply are negatively related to stock prices, exchange rates are positively related to stock prices, and CPI is insignificant in influencing the stock prices, in the long-run. Both the IRF and VDC suggest that shocks to macroeconomic variables explain a small proportion of the forecast variance error of the DSI, but these effects persist for a long period. Stock markets, where shares and bonds are traded and issued through exchanges and over-the-counter markets, form an integral part of the financial markets and are important for the development of an economy. Stock markets contribute to the economy by providing businesses with access to capital and investors with opportunities for capital gains. Research has shown that stock market development contributes significantly to the economic growth of a country (Levine and Zervos, 1996)  [1]  . Since stock market prices are subject to fluctuations, it is essential to determine the forces influencing the stock prices for efficient functioning and development of the stock market and country. There are many reasons for there to be an interest to determine the forces influencing the stock prices. Firstly, this may interest investors, so they can forecast stock prices accurately to make apt decisions regarding their stock portfolio for maximum gains. Secondly, businesses may find this useful; as stock price is an indication of the financial health of the companies, businesses may be interested to determine the future stock prices as it will allow them to assess their ability to issue bonds or obtain financing in the future. Thirdly, policymakers and economists may find this useful, so they can predict stock prices as prices of stocks reflect changes in economic activity in the long run (Cheung and Lai, 1999). Stock prices are expected discounted dividends, i.e. discounted value of future cash flows derived f rom a stock. Theoretically, stock prices are modelled as: where P refers to the stock price, CF refers to the cash flows derived from a stock and R refers to the discount rate. Hence, any forces influencing the discount rates, R, or expected future cash flows derived from a stock, CF, will affect the stock prices. However, theoretical models do not provide an identity of these exogenous economic forces (Bodhurta et al., 1989), i.e. do not identify the economic forces influencing the stock prices. Macroeconomic variables are potential candidates for these forces because macroeconomic changes simultaneously affect many firms cash flows and may influence the risk-adjusted discount rate (Shiller, 1981; Leroy and Porter, 1981; Flannery and Protopapadakis, 2002), or simply, discount rate. The purpose of the dissertation will be to try to find a long-term relationship between macroeconomic forces and stock prices for an emerging stock market in a less developed country. The dissertat ion will focus on an emerging market because the behaviour of stock prices in these countries is not tied to economic fundamentals (Gunasekarage et al., 2004) and, therefore, makes it difficult to predict the forces affecting the stock prices. Moreover, studies on emerging markets have shown that returns and risks in these markets are higher relative to those in stock markets in developed countries (Harvey, 1995a). It will be interesting to determine what factors cause these higher risks and returns and study the relationship between macroeconomic forces and stock prices in emerging stock markets. The dissertation will study the relationship between a selective set of macroeconomic variables and stock prices in the Bangladesh stock market. The Bangladesh stock market is an established capital market and deemed as the next Asian success story by JPMorgan Chase, Citigroup, and Merrill Lynch (Bloomberg, 1997); its stocks have performed well in recent years and prices gained nearly 5 0% over one year in 2010 (2nd highest in the world after Sri Lanka)  [2]  . However, the stock market is still developing and the analysis made in this study can, therefore, be used to shed light on other emerging stock markets. For the purpose of the study, the stocks from the Dhaka Stock Exchange (DSE), the primary stock market of Bangladesh, will be considered as it covers majority of the stocks in the country and will allow a more comprehensive analysis. The DSE uses three share price indices Dhaka All-Share Price Index (DSI), Dhaka General Price (DGEN) Index, and DSE-20  [3]  . The DSI will be used as a proxy for stock prices for the study as it covers all the stocks including Z-category shares. The study will cover the last two decades since the DSE became very active during this period due to developments in the capital markets of Bangladesh, such as exemption of tax dividends on stock market investments to increase stock trades, off-loading of shares of governmen t-owned companies, allowing investment of black money  [4]  into the capital market, etc. The next section reviews the existing literature on the topic and discusses the methodologies used in the papers. Section 3 describes the macroeconomic variables used in the study along with their hypothesized relationship with the stock prices. Section 4 discusses the sources from which the data were collected and provides descriptive statistics of the data. Section 5 explains the econometric model and methodologies used in the study. Section 6 provides the empirical results with interpretations. Section 7 concludes the paper and offers further remarks. Literature Review Chen, Roll and Ross (1986) (CRR) was one of the pioneer papers that tried to identify the macroeconomic variables that influenced stock returns and determined this relationship for the New York Stock Exchange (NYSE). They used a regression framework to test whether macroeconomic innovations such as monthly growth in industrial production, expected inflation and unexpected inflation  [5]  , and an interest rate spread variable have systematic influences on stock market returns. To this end, they estimated a Vector Autoregression (VAR) model of lagged stock market returns and used the residuals of the macroeconomic variables as the unanticipated innovations in the macroeconomic factors. They found that industrial production, changes in the risk premium, term structure, unexpected inflation and changes in anticipated inflation were significant in explaining expected stock returns in the NYSE. They also used value-weighted NYSE index as a macroeconomic variable, and found that it h as an insignificant influence on expected returns. Poon and Taylor (1991) used the dataset for the London stock market and the same macroeconomic variables as CRR and found that no significant relationship exists between stock returns and the macroeconomic variables. Diacogiannis (1986) and Cheng (1995), similarly, determined that there is no conclusive result regarding the relationship of relevant macroeconomic variables with the capital market of the U.K. Gà ¼nsel and Çukur (2007), using the same variables as CRR, looked into different industries in the U.K. and found that macroeconomic factors have a significant effect in the U.K. stock exchange market; however, each factor affect different industry in different manner. Further work on the topic has extended the analysis by incorporating different framework/setting and conducted the study using different econometric methods. Bodhurta et al. (1989) undertook an analysis for seven major industrial countries United State s, Japan, United Kingdom, Germany, France, Canada and Australia. They chose the same explanatory variables as CRR, and to incorporate an international setting, introduced deviations from Purchasing Power Parity, typified as real exchange rate changes, and interest rate parity. They were able to demonstrate that several of the international analogs of the CRR domestic variables stock index returns, industrial production, bond returns, unanticipated inflation and oil prices are significant in explaining the average stock returns in the cross-section sample. Mukherjee and Naka (1995) used a different methodology to determine the relationship between macroeconomic forces and stock returns. They employed Johansens (1991) Vector Error Correction Model (VECM) to examine whether relevant macroeconomic variables and the Tokyo Stock Exchange (TSE) index were cointegrated for the period 1971-1990. They found that a cointegrating relationship exists and that stock prices contributed to the relation. The relationships between stock index and exchange rates, inflation, money supply, and industrial production were as hypothesized and the same as existing literature. However, the results for the interest rates were mixed. The relation between the TSE and long-term government bond rate (LGB) was negative, but positive between the TSE and call money rate; they state that this may be because the LGB is a better proxy for risk-free rate in the basic stock pricing model. Nasseh and Strauss (2000) used Johansens cointegration procedure and variance decompositions method for 1962-1995 for six European countries: France, Germany, Italy, The Netherlands, Switzerland and the U.K, and found support for the existence of a long-run cointegrating relationship between stock prices and domestic interest rates, consumer prices, real industrial production, business surveys of manufacturing orders, and International (German) movements in stock prices. There have only been a few studies f ocused on the emerging markets in less developed countries. Wongbangpo and Sharma (2004) studied the stock markets of the five ASEAN countries, namely Indonesia, Malaysia, Singapore, Philippines and Thailand, and their relationship with select macroeconomic variables. They found that in the long-run, the stock prices were positively related to growth in output, and negatively to the aggregate price level. A negative long-run relationship between stock prices and interest rates was observed in Philippines, Singapore and Thailand. High inflation in Indonesia and Philippines was found to influence the long-run negative relation between stock prices and the money supply, while the money growth in Malaysia, Singapore and Thailand was found to be responsible for the positive effect on their stock markets. Lastly, the exchange rate variable was positively related to stock prices in Indonesia, Malaysia, and Philippines, which can be explained by the high competition in the world exporting m arket. Mookerjee and Yu (1997) and Maysami and Koh (2000) studied the Singapore stock market and found that changes in Singapores stock market levels form a cointegrating relationship with changes in price levels, money supply, short- and long-term interest rates. Gunasekarage et al. (2004) examined the long-run relationship between macroeconomic factors and all-share price index from 1985-2001 for the Colombo Stock Exchange and found that the consumer price index and treasury bill rate coefficients are significant and negative, money supply coefficient is significant and positive, but exchange rate had no influence on share price indices. Frimpong (2009) conducted a study on Ghana for the period 1990-2006 and found that exchange rates are positively related to the Ghana Stock Exchange All-Share index (GSE), and inflation and money supply are negatively related to the GSE. Rahman and Moazzem (2011) attempted to identify the causal relationship between changes in the DSE stock pri ces and the regulatory decisions taken by the Securities and Exchange Commission. The results suggested that market price fluctuations were positively and significantly influenced by these decisions, a result that was opposite of what was expected. However, the methodology suffers from endogeneity as the number of decisions taken may be due to high price indices in the given month. Macroeconomic Forces and the DSI: Hypothesized Relations This section covers the macroeconomic variables chosen for the study and their hypothesized relationships with the DSI. The variables chosen were based on financial theory and established literature deposit interest rates (IR), exchange rate (EXR), consumer price index (CPI), crude oil prices (OP) and broad money supply (M2)  [6]  . The intuition behind the relationship between deposit interest rates and stock prices forms the basis for the hypothesized negative relationship between the variables. Interest rates represent the opportunity cost for investors in the equity markets (Asprem, 1989). An increase in the interest rates results in high opportunity cost of holding cash and leads investors to substitute between stocks and other interest-bearing securities. Moreover, the interest rates, through their effect on the risk-free rate, will lead to an increase in the discount rate (Mukherjee and Naka, 1995). Thus, stock prices are expected to fall and vice versa. Solnik (1 987), Soenen and Hennigar (1988) and Ma and Kao (1990), among others, indicate that exchange rates play a significant role in affecting the performance of a stock market. For this study, a positive relation is hypothesized between exchange rate (against the U.S. dollar)  [7]  and stock prices based on the classic theory of Hume (1752). As goods in the Bangladesh economy become relatively more expensive in the international market due to an appreciation of the Bangladeshi Taka (falling exchange rate) against the U.S. dollar, demand for exports reduce and, at the same time, demand for imports increase, thus leading to lower Taka-denominated cash flows into the Bangladeshi companies and hence, lowering stock prices. This is evident from the theoretical model of stock valuation. The opposite should hold when the Bangladeshi Taka depreciates against the U.S. Dollar. The relation between consumer price index and stock returns has been generally theorized to be negative (Fama and Sc hwert, 1977). A decrease in consumer price index decreases the nominal risk-free rate and lowers the discount rate in the stock valuation model, leading to higher stock prices. Mukherjee and Naka (1995) suggest that the effect of a lower discount rate would be neutralized if cash flows decrease with the CPI. DeFina (1991), however, documents that cash flows do not decrease at the same rate as inflation or CPI, and, hence, it is expected that the fall in discount rate will lead to higher stock prices. It must be noted though, that prices, in general, may be subject to greater fluctuations in the developing countries, which may render the relationship insignificant. Thus, a negative or insignificant relationship is expected between CPI and stock prices. Crude oil prices are used in this study following Hassan and Hashim (2010). Oil prices serve as an input for production in sectors, such as agriculture and manufacturing. Changes to these prices are likely to affect the economic act ivities taking place in the country. A negative relationship is hypothesized between oil prices and stock prices since higher oil prices may lead to a decrease in production and thereby lower cash inflows and stock prices. The opposite relationship is expected to hold as well. It should be noted that crude oil price is an external factor the objective is to see whether international factors play a role in the stock markets of Bangladesh. The relationship between money supply and stock prices is not straightforward. It has been widely tested because changes in money supply have important direct effects on stock prices via portfolio changes, and indirect effects via its effects on real activity variables (Mookerjee and Yu, 1987). As money growth rate is likely to be positively related to inflation, it will increase the discount rate and, hence, lower stock prices. However, prices are constant in this study; hence, money supply may affect stock prices through other mechanisms. Sell in (2001) argues that a positive money supply shock will alter expectations about future monetary policy and lead people to anticipate tightening monetary policy in the future. The subsequent increase in bidding for bonds will drive up the current rate of interest. As the interest rate goes up, the discount rates go up as well, and the present value of future earnings decline, leading to decline in stock prices. The increase in money supply may also lead to a boost in companies cash flows resulting from the increased money supply (Mukherjee and Naka, 1995; Chaudhuri and Smiles, 2004), known as corporate earnings effect, which is likely to increase stock prices. For this study, a negative relationship is expected between money supply and stock prices since prices and interest rates are subject to greater fluctuations in developing countries. Data 4.1 Data Sources For the purpose of this paper, monthly data has been collected for the period January 1992 to June 2011. The period was chosen purposefully since the Bangladesh economy has undergone major changes during this period, such as trade liberalisation in the 1990s, stock market crash in 1996, and again in 2010-2011, capital market developments in the 2000s, etc., and it will be interesting to analyse the relationship between the macroeconomic variables and stock index during this period. Firstly, the monthly Dhaka Stock Exchange All-Share index data is obtained from the Dhaka Stock Exchange and its website  [8]  . Next, five macroeconomic variables have been chosen to determine their relationships with the stock prices. These include the interest rate (deposit rate), the exchange rate (domestic currency for US dollar), consumer price index (with a base year of 2005) as a measure of inflation, per barrel price of crude oil in U.S. Dollar, and broad money supply. Oil price is taken to serve as a proxy for international risk factors and external supply side shocks  [9]  . Data on consumer price index, exchange rate, deposit interest rates and crude oil prices were collected from the International Financial Statistics of the International Monetary Fund. Data on broad money was collected from the Monthly Trends publications of the Bangladesh Bank. Other variables were also considered for the study initially, such as call money rate and industrial production index, but due to unreliability and unavailability of data, they had to be excluded from the study. Data Statistics This sub-section provides descriptive statistics and time-plots (attached in Figure A-1a:f in the Appendix) for the data under study. The purpose is to observe the trends that the variables have displayed over the period and analyse the changes that have taken place. For the sake of the study, all the variables (except interest rates  [10]  ) have been converted into natural logarithms  [11]  . The following table gives a summary of the descriptive statistics of the variables: Table 4.: Descriptive Statistics of Variables January 1992 to June 2011 Variable Summary Statistics Logged Variables (except IR) DSI IR ER CPI OP Mean 6.99 8.22 3.98 4.42 3.44 St. Dev. 0.76 1.21 0.22 0.32 0.65 Maximum 8.87 11.39 4.30 5.05 4.89 Minimum 5.66 5.77 3.66 3.93 2.34 Note: DSI is Dhaka Stock Exchange All-Share Index, IR is deposit interest rate, ER is exchange rate, CPI is consumer price index , OP is oil prices and M2 is broad money. All the variables (except interest rates) are in natural logarithms Source: Dhaka Stock Exchange, Bangladesh Bank and International Financial Statistics The table above and the time plot in Figure A-1a show that in the span of 1992M1-2011M6, the DSI has registered high fluctuations in levels. Figure A-1a shows that the DSI has registered an upward trend over the period under consideration. The DSI series shows spikes in 1996 and 2010, both were due to bubbles  [12]  in the stocks. The deposit interest rates were fairly stable in the period under consideration, with low standard deviation in levels, as seen in Table 4.1 and Figure A-1b. The deposit interest rates were lower during the periods of the stock price crashes, as banks were forced then to lower the interest rates that they pay out on deposits to consumers. The exchange rate of Bangladeshi Taka against the U.S. Dollar has been on an upward trend for the entire period, as seen in Figure A-1c. The Bangladesh economy is highly reliant on imports for luxury products and raw materials. Since these transactions are conducted in U.S. Dollars, the exchange rate of the Bangladeshi Taka against the U.S. dollar has been rising. However, the appreciation of the U.S. dollar against the Bangladeshi Taka has ceased since the global financial crisis in 2006-2007, as transactions in U.S. Dollar have reduced. The consumer price index, which is taken to account for inflation  [13]  , has risen steadily over the entire period, with higher increase in recent periods, as shown in Figure A-1d. This is due to high food prices in recent years  [14]  . The crude oil prices data in Figure A-1e show that the prices have remained mostly stable until 2006. Since then, crude oil prices have seen major fluctuations with record-high prices during the recent global financial crisis. The prices were lower in 2008, affected by easing of tensions between the U.S. and Iran. A stronger US dollar in the international market and a likely decline in European demand are also among the causes of the decline. The broad money supply data in Figure A-1f show that M2 has remained stable except for two shocks in 1996 and 2006. However, the overall trend in the broad money data has been upward. Econometric Methodology The purpose of the research is to determine if a long-run relationship exists between the DSI and macroeconomic factors for Bangladesh. The econometric model to be used for the paper is as follows: where the variables are as they have already been defined, and ÃÆ'Ã… ½Ãƒâ€šÃ‚ µt is the error term in the model. ÃÆ'Ã… ½Ãƒ ¢Ã¢â€š ¬Ã¢â€ž ¢0 represents the constant term in the model and ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²1, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²2, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²3, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²4 and ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²5 represent long-run parameters. Time-series econometrics requires an analysis of the time-series properties and paths of the economic variables in a regression equation before estimation in order to assess if a long-run relationship can be estimated for the model. A long-run relationship exists if the variables are non-stationary in levels and stationary in first differences. More specifically, it should be ensured that the variables in the study are integrated of order d, where dÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¥1, i.e., they should be stationary in differenced forms, denoted as I(d). To test for stationarity, i.e. no unit root, in the variables, two tests are used the Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) tests. ADF estimates the following equation: where ÃÆ'Ã… ½Ãƒâ€šÃ‚ ´ refers to the existence of a trend and ÃÆ' Ãƒâ€šÃ‚ , to presence of unit root. The ADF test is carried out for two models with constant and trend, and constant with no trend (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ´=0). The lag of dependent variable is included to account for autocorrelation. For the Phillips-Perron unit root tests, however ÃÆ'Ã… ½Ãƒâ€šÃ‚ ³j=0, and the PP test incorporates an automatic correction to the test on ÃÆ' Ãƒâ€šÃ‚ =0 to allow for autocorrelated residuals. The PP test estimates: where , and the second term is the Newey-West estimator of the error variance which adjusts the statistics for the possibility of autocorrelated error. The optimum lag length to be used in ADF tests are decided using the Schwert maximum lag length, sequential t-test procedure, Akaike Information Criterion (AIC) and Schwarz Bayesian Information Criterion (SBIC). The lower the value of the criterion, the better the fit for the unit root tests. When the sample is large, say T 250, it is better to rely on SBIC. However, if the sample contains observations below T 250, AIC is a better fit and used to account for the optimal lag length. After testing the variables for unit root, the next step entails determining if cointegration exists among the variables. Engle and Granger (1987) suggest that a long-term equilibrium relation between stock prices and macroeconomic factors can be determined using cointegration analysis. If two or more series individually have unit root series, but some linear combination  of them has a stationary process, then the series is said to be cointegrated. The Johansen (1991) method is an extension of Engle and Granger procedure, all owing for more than one cointegrating equation and it this procedure which will be undertaken. Suppose for a multivariate case, where Yt is a vector of k variables, and i 1,2 ÃÆ'Ã… ½Ãƒâ€¹Ã…“i is k x k. This can be manipulated and written as: where ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  Yt = Yt Yt-1, and ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒâ€šÃ‚ k = ÃÆ'Ã… ½Ãƒâ€¹Ã…“1 + ÃÆ'Ã… ½Ãƒâ€¹Ã…“2 Ik. If the rank of ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒâ€šÃ‚ k is zero, then there are no cointegrating vectors. In the presence of cointegration, ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒâ€šÃ‚ k has rank r ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤ k 1, and then, ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒâ€šÃ‚ k = ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±ÃƒÆ'Ã… ½Ãƒâ€šÃ‚ ², where ÃÆ'Ã… ½Ãƒâ€šÃ‚ ± is k x r and ÃÆ'Ã… ½Ãƒâ€šÃ‚ ² is r x k. Then, this can be written as: where ÃÆ'Ã… ½Ãƒâ€šÃ‚ ² is the cointegrating matrix, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²Yt represents the r linear combination and ÃÆ'Ã… ½Ãƒâ€šÃ‚ ± represents the speed of adjustment towards the long-run equilibrium relationship. In o rder to perform Johansen tests, we need to compute the k eigenvalues of , which is the estimate of ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒâ€šÃ‚ k. It is assumed that is the squared canonical relationship ordered from the largest to the smallest. If there are r cointegrating relationships, then log(1 + ÃÆ'Ã… ½Ãƒâ€šÃ‚ »j) = 0 for j=r+1,ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦,k. Test for H0 : r ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤ r0 versus HA : r r0, i.e. under the null, the number of cointegrating vector is at most r0, under the alternative, it is larger than r0. This is called a Trace test. The maximum eigenvalue test is also conducted to test for the number of cointegrating relationships. Under the maximum eigenvalue test, H0 : r ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤ r0 versus HA : r = r0 + 1, i.e. under the null, the number of cointegrating vector is at most r0, under the alternative, it is equal to r0 + 1. If at least one cointegrating relationship exists among the variables, a causal relationship among them can be determined by estimating the Vector Error Correction Model (VECM). In this study, the short-run VECM equation with a lag length p is modeled as: where the variables are I(1) and as previously defined, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±1, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±2, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±3, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±4, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±5 and ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±6 represent short-run elasticities, ÃÆ'Ã… ½Ãƒâ€šÃ‚ µt-1 is the error correction term, with its coefficient ÃÆ' Ãƒ ¢Ã¢â€š ¬Ã‚  , which conveys the long-run information contained in the data and denotes the speed of adjustment to long-run equilibrium after a shock to the system. The VECM builds on cointegration by incorporating error correction terms that account for short-run dynamics, and, if a long-run equilibrium condition is valid and cointegration exists, it explains short-run fluctuations (as represented by the ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±1, ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦. ÃÆ'Ã… ½Ãƒâ€šÃ‚ ±6) in the dependent variable (Frimpong, 2009). The optimal num ber of lags is determined by lag length in VAR using AIC. Impulse Response Functions (IRF) and Variance Decompositions (VDC) will be constructed after estimating the VECM. IRF is a useful tool for characterizing the dynamic responses implied by estimated VECMs. Consider a first-order VAR for the n-vector yt: where ÃÆ'Ã… ½Ãƒâ€šÃ‚ ¼ is the vector of intercepts and ÃÆ'Ã… ½Ãƒâ€šÃ‚ µt ~ IN (0,). The IRF of a shock to variable, for instance, IR on variable DSI after k periods as: where ÃÆ'Ã… ½Ãƒâ€šÃ‚ µIR,t is the vector ÃÆ'Ã… ½Ãƒâ€šÃ‚ µt excluding the IR element. The IRF measures the effect of a shock of 1 unit occurring at period t-k, on variable DSI, k periods later, assuming there are no other shocks at period t-k, or in the other intervening periods (t-k+1,ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦t). The IRF shows impulse responses of the select variable in the VECM system in regards to the time paths of the variables own error shock against the error shocks to other variables in the system. Since the innovations of error terms are likely to be correlated, a mechanism of Impulse Response via the Generalized Impulse Response method is implemented, to ensure orthogonalization of the innovations. Unlike other mechanisms of orthogonalization of innovations where the interpretation of specific impulses rests on the ordering of variables within the VAR system, the Generalized Impulse Response has no such concern on the VAR ordering. The VDC is implemented to show the percentage of the movement of the t-step ahead forecast error variance of the select variable in the VECM system that is attributed to its own error shock in contrast to error shocks to other variables in the system (Gunasekarage, 2004). Empirical Results 6.1 Results of Unit Root Tests It is essential to confirm the order of integration of all the variables before the model is estimated and tested for cointegration. The Augmented Dickey Fuller and Phillips-Perron tests are employed to test for unit roots and the results are reported in Table 6.1. The tests were conducted for all the variables with both a constant and a time trend, with lags for the ADF tests selected as per the Akaike Information Criterion, unless otherwise stated. The lags were also tested for significance prior to their results being reported. For the PP test, Bandwidth or the lag truncation parameter was chosen using the estimation method of Bartlett kernel. The null hypothesis for the ADF and PP tests is that the selected variable has a unit root. When the test statistic for a variable was greater than the critical value for the test, the null of unit root was rejected and vice versa. Table 6.: Results of Unit Root Tests Variable Augmented Dickey Fuller Phillips Perron Constant Trend and Constant Constant Trend and Constant Level DSI -0.95 (1) -2.08 (1) -0.92 (5) IR -2.26 (1) -2.73 (1) -2.76 (8) ER -0.58 (10) -2.53 (10) -0.31 (2) CPI 2.01 (4) -1.73 (4) 1.68 (9) OP -0.67 (1) -2.94 (1) -0.61 (4) M2 -3.65 (5) 0.21 (5) 1.18 (1) First Differences ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  DSI -12.83 (0)*** -12.81 (0)*** -12.85 (3)*** ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  IR -5.78 (2)*** -6.03 (2)*** -14.43 (8)*** ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  ER -4.07 (7)*** -4.06 (7)*** -13.00 (5)*** ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  CPI -4.39 (10)*** -4.69 (10)*** -10.30 (16)*** ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  OP -11.84 (0)*** -11.84 (0)*** -11.82 (1)*** ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  M2 -7.79 (5)*** -11.66 (4)*** -26.04 (1)*** The ADF and PP critical values for t-statistics at 1% and 5% significance levels for th e model with the constant are -3.46 and -2.88 respectively; the model including both the trend and constant are -4.00 and -3.43 respectively ***, ** and * denote the rejection of unit root/non-stationarity for the ADF and PP tests at 1%, 5% and 10% significance levels respectively The numbers in parentheses for the ADF tests correspond to the optimum lag length, as per Akaike Information Criterion, unless otherwise stated The numbers in parentheses for the PP tests correspond to the Bandwidth, based on Newey-West using Bartlett Kernel for PP MacKinnon (1996) critical values are used for ADF and PP tests. The variables show non-stationarity in levels and stationarity in first differences, for both the ADF and PP tests. The lags for interest rates in levels under the ADF test estimated using the AIC were insignificant with a constant and trend at 5% significance level, hence, the lags were changed until they were significant and then the appropriate test statistic repor ted. The lags for the first differences of the exchange rates data under the ADF test estimated using the AIC were insignificant with a constant and trend at 10% significance level. Similar to the tests for interest rates, the lags were then modified until they showed significance. As can be observed from Table 6.1 above, all the variables are non-stationary in levels, and stationary in first differences, a necessary pre-condition for cointegration analysis. 6.2 Results of Optimum Lag Length Tests In choosing the specification of the cointegration model, it is necessary to specify the number of lags in the autoregressive specification (Chaudhuri and Smiles, 2004). For this purpose, the Likelihood Ratio, Final Prediction Error, Akaike, Schwarz and Hannan-Quinn Information Criterion were used to determine the appropriate lag length. The AIC, SIC and HQIC are chosen based on lowest values over the lags considered (allowed for a maximum ten lags in this case). The Akaike criterion suggests that a lag of five is optimal, whereas the Schwarz criterion indicates a lag of one. Since the number of observations considered in the study is below 250, the AIC is a better fit for the model. In addition, overestimating the order of the VAR is a bigger mistake than underestimating it and, hence, it is better to rely on AIC. Table 6.: VECM Lag Order Selection Criteria Lag LR FPE AIC SIC HQIC 0 4.6-9 -2.16 -2.07 -2.12 1 4374.6 2.1-17 -21.37 - 20.73* -21.11 2 123.86 1.7-17 -21.60 -20.41 -21.12* 3 66.87 1.7-17 -21.58 -19.84 -20.88 4 74.43 1.7-17 -21.59 -19.30 -20.67 5 86.98 1.6-17* -21.66* -18.82 -20.51 6 57.24 1.7-17 -21.59 -18.21 -20.22 7 75.44 1.7-17 -21.60 -17.68 -20.02 8 61.34* 1.8-17 -21.56 -17.08 -19.75 9 38.71 2.2-17 -21.41 -16.38 -19.38 10 44.92 2.5-17 -21.29 -15.71 -19.04 *indicates lag order selected by the criterion 6.3 Results of Johansen Cointegration Tests Table 6.3 shows the results for the Johansen Cointegration test performed to investigate the long-run relationships of the variables in the model. However, the number of cointegrating vectors generated by the Johansen test may be sensitive to the lag length. Hence, the optimum lag length estimated in the previous section via AIC (five) will be used to determine the number of cointegrating relations. Table 6.: Results for Johansen Cointegration Test No. of CE(s) [H0] ÃÆ'Ã… ½Ãƒâ€šÃ‚ »max Statistic 95% Critical Value [Max.] 99% Critical Value [Max.] ÃÆ'Ã… ½Ãƒâ€šÃ‚ »trace Statistic 95% Critical Value [Trace] 99% Critical Value [Trace] r=0 41.58 39.37 45.10 104.51 94.15 103.18 rÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤1 32.59 33.46 38.77 62.93* 68.52 76.07 rÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤2 14.57 27.07 32.24 30.35 47.21 54.46 rÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤3 10.35 20.97 25.52 15.78 29.68 35.65 rÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤4 5.36 14.07 18.63 5.42 15.41 20.04 rÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤5 0.06 3.76 6.65 0.06 3.76 6.65 *denotes rejection of the hypothesis at the 5% and 1% significance level r denotes the number of cointegrating relationships CE refers to cointegrating equations The first column in Table 6.3 shows the null hypothesis assumed for the Maximum Eigenvalue and Trace Tests. The value of ÃÆ'Ã… ½Ãƒâ€šÃ‚ »trace under the null of r = 0 (no cointegration) is 104.51, which is greater than 94.15, the 5% critical value reported from Osterwald-Lenum (1992), so the null of no cointegration can be rejected in favour of one cointegrating equation. For r ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤ 1, the ÃÆ'Ã… ½Ãƒâ€šÃ‚ »trace measure is less than the critical value at 1% and 5% significance levels, which forms the basis for accepting the null hypothesis of at least one cointegrating vector. An alternative measure th at is used to determine the number of cointegrating vectors is ÃÆ'Ã… ½Ãƒâ€šÃ‚ »max. The ÃÆ'Ã… ½Ãƒâ€šÃ‚ »max shows that at the 5% significance level, the null hypothesis of no cointegrating vector is rejected since the value of 41.58 is greater than 39.37. However, similar to the ÃÆ'Ã… ½Ãƒâ€šÃ‚ »trace statistic, for r ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€šÃ‚ ¤ 1 and other values of r, the ÃÆ'Ã… ½Ãƒâ€šÃ‚ »max measure is less than the critical value at 5% significance level. Therefore, it can be assumed that there is at least one cointegrating vector. According to both ÃÆ'Ã… ½Ãƒâ€šÃ‚ »trace and ÃÆ'Ã… ½Ãƒâ€šÃ‚ »max statistics, it can be confirmed that there is at least one long-run equilibrium relationship between the Dhaka Stock Exchange All-Share Index and macroeconomic variables. Lags of six and seven were considered to check for robustness; they also indicated one cointegrating relationship. 6.4 Results of Long-Run Cointegration Model Table 6.4 shows the long-run cointegrating model. The long-run relationships were as hypothesized in the study and these are reported below: Table 6.: Long Run Cointegrating Model Regressor Coefficient Std. Error t-statistics Constant -1.39 Interest Rate -0.12 0.07 -1.79* Exchange Rate 5.26 1.33 3.94*** Consumer Price Index 3.01 2.26 1.33 Crude Oil Prices -0.69 0.21 -3.28*** Broad Money Supply -2.66 1.19 -2.23** ***, ** and * denote significance of variables at the 1%, 5% and 10% significance levels. Note: Dependent Variable DSI According to the table, the actual long-run relationship can be represented by: DSI = -0.12IR + 5.26ER + 3.01CPI 0.69OP -2.66M2 In the long-run, deposit interest rates and the DSI are significantly and negatively related. This was expected as high deposit interest rates mean that rational investors would be less interested to invest in risky assets in the Dhaka Stock Exchange. Consequently, this will lower the stock prices and hence, the DSI. The relationship was found to be significant at 10% level in the long-run. The finding is consistent with the literature, though early studies dealt primarily with Treasury-bill (short -term) rate and government bond rate (long-term)  [15]  . Mukherjee and Naka (1995), Maysami and Koh (2000), and Bulmash and Trivoli (1991) found a positive relation between the short-term interest rates and stock market prices, and a negative relationship between long-term interest rates and stock prices. The relationship between deposit interest rates and stock prices in the study are, therefore, consistent with the results of the long-term interest rates. The exchange rate and the DSI are significantly and positively related in the long-run. This was also hypothesized since increasing exchange rates (Taka depreciation against the U.S. Dollar) result in money inflows, and, consequently higher investment in the stocks. A higher investment in the Dhaka Stock Exchange would lead to higher prices for the stocks and higher DSI. Mukherjee and Naka (1995) and Brown and Otsuki (1990) also report the same relation for the Japanese stock market. This is in contrast to Maysami and Koh (2000) and Gunasekarage (2004). Maysami and Koh (2000) found that the Singapore Dollar exchange rate (against the U.S. Dollar) and the Singapore stock market are negatively related. They state that an appreciation of the Singaporean Dollar lowers imported inputs and allows the exporters in the country to be more competitive internationally. This is received as favourable news for the Singapore stock markets and, hence, positive stock returns are generated as a result. Gunasekarage (2004) found that exchange rates have no significant relationship with the Colombo stock prices. This was due to limited participation by the foreign investors. It was hypothesized that the relationship between CPI and the DSI in the long-run will be either negative or insignificant due to large price changes. However, long-run cointegrating model shows that the relationship between CPI and stock prices is positive; a possible reason for the positive relationship is that high prices of essentials might have led to an increase in the stock prices. The relationship, though, was insignificant, which confirms that large price changes in Bangladesh affect the theorized relationship. Price fluctuations in developing countries are more prevalent due to lower regulations, competition, etc. and explain why the relationship was found insignificant. The result found here is not consistent with early evidence in the literature Lintner (1973), Oudet (1973), Bodie (1976), Nelson (1976), Mukherjee and Naka (1995) and Gunasekerage (2004) found a negative relationship between CPI and stock prices. The relationship between crude oil prices and the DSI was found to be negative in the long-run. Chen et al. (1986) found an insignificant relationship between oil prices and the NYSE. Hassan and Hisham (2010) found a negative relationship between crude oil prices and the Jordan Stock Exchange. However, it has been recently seen that crude oil prices and stock prices are positively related, ignoring the theorized relationship. For e.g., the Standard Poors (SP) 500 Index and the oil prices from 1998-2008 have demonstrated a positive relationship with each other with a correlation of 0.55 and the correlation has increased to 0.86 since 2008 (Smirnov, 2012). However, for the DSI, the relationship was negative with oil prices and consistent with the hypothesis. The relationship between money supply and stock prices was found to be negative and significant at 5% level in the long-run. As money supply is increased, it leads people to expect a tightening monetary policy in the future and hence, a higher interest and discount rate, and lower stock prices. This is consistent with Frimpong (2009), who similarly found a negative relationship between the Ghana stock prices and money supply. However, most of the studies in the literature have found a positive relationship between stock prices and money supply, such as Bulmash and Trivoli (1991), Mukherjee and Naka (1995) and Gunesekarag e (2004). To check for robustness, lags of six and seven were considered. All the variables reported the same relationship with the stock prices at six lags; however, oil prices and money supply were insignificant in explaining stock price changes. Lags of seven rendered the relationship between oil and stock prices significant, but the relationship between money supply and stock prices remained insignificant. This shows that money supply and oil prices are sensitive to lag lengths and the results for these variables are not robust. 6.5 Results of Short-Run Cointegration Model Table 6.5 below reports the short-run results of the Vector Error Correction Model. The sign and magnitude of the error correction coefficient (speed adjustment term) indicates the direction and speed of adjustment towards the long-run equilibrium path. A negative error correction coefficient implies that the models deviation from the long-run relation, in the absence of variation in the independent variables, is corrected by changes in the dependent variable. This confirms the existence of a long-run relationship. The size of the coefficient of the error correction term in this study implies that about 5.3% of the disequilibrium in the long-run model is corrected every month. The error term coefficient was significant at the 5% level. The short-run results indicate that DSI and interest rates positively affect the DSI at the first lag; the results from the latter lags are insignificant. CPI positively affects the stock prices at the third lag, but it was insignificant for other lags. Exchange rates, oil prices and money supply mostly affect the DSI negatively, but these variables are also statistically insignificant at most lags. Other lags were also considered for robustness and better results. Lags of four and seven revealed a negative sign for the error correction term but it was not significant. The other variables, similarly, did not result in more significant or robust estimates. Due to statistical insignificance of the variables, Impulse Response Function is employed to explain the short-run results better. Table 6.: Vector Error Correction Model Error Correction: Coefficient Standard Error t-statistics Speed of Adjustment -0.053 0.022 -2.42** ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  DSIt-1 0.172 0.071 2.44** ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  DSIt-2 -0.012 0.071 -0.17 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  DSIt-3 0.110 0.071 1.55 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  DSIt-4 -0.002 0.072 -0.02 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  IRt-1 -0.025 0.024 -1.03 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  IRt-2 0.028 0.024 1.15 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  IRt-3 -0.023 0.025 -0.92 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  IRt-4 0.017 0.025 0.65 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  ERt-1 -0.968 0.924 -1.05 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  ERt-2 0.093 0.935 0.10 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  ERt-3 -0.576 0.937 -0.61 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  ERt-4 -0.708 0.958 -0.74 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  CPIt-1 -0.172 0.883 -0.20 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  CPIt-2 0.247 0.895 0.28 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  CPIt-3 1.803 0.903 2.00** ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  CPIt-4 -0.020 0.889 -0.02 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  OPt-1 0.090 0.087 1.04 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  OPt-2 0.074 0.08 8 0.84 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  OPt-3 -0.056 0.088 -0.62 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  OPt-4 -0.023 0.087 -0.26 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  M2t-1 -0.186 0.282 -0.66 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  M2t-2 -0.026 0.319 -0.08 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  M2t-3 0.026 0.308 0.08 ÃÆ' ¢Ãƒâ€¹Ã¢â‚¬  Ãƒ ¢Ã¢â€š ¬Ã‚  M2t-4 0.045 0.259 0.17 Constant 0.001 0.015 0.05 6.6 Results of Impulse Response Functions and Variance Decompositions The results for the Impulse Response Functions are reported in Figure A-2. Impulse Response Analysis entails analysing the incremental impact of a shock to the whole system. Hence, we are primarily concerned about the behaviour of the short-run dynamics of the model in the presence of any external shock to the system. Figure A-2 shows the effect of macroeconomic shocks on the DSI. Four years of data are forecasted and their effects plotted via Impulse Response Functions. An interest rate shock causes the DSI to fluctuate initially, however, from the 15th month onwards, the effect from the shock recedes and in the 30th month, the effect dies out. An exchange rate shock results in a big dip in the DSI; this is in contrast to the long-run relationship found. The resulting fall from the shock increases over time, but from the 6th month onwards, the gap remains steady. There are no signs of convergence here, unlike the interest rates. A consumer price index shock leads to an incre ase in the DSI initially, but then the relationship becomes negative, which is consistent with the study. This effect is seen to increase slowly over time. Oil prices shock lead to a large increase in the DSI initially and the effect increases with time. Money supply shock leads to a slight fall in the DSI the first month, but then increases the DSI over time, which supports the cash flow effect of money supply. Table 6.6 reports the Variance Decomposition test results. Twenty months of the model are forecasted and the results indicate that most of the variations in the DSI are explained by the DSI itself. In the 5th period, 94.58% of the variation in the DSI was explained by shocks to itself, 2.09% by ER and 2.54% by OP. At the end of the 10th period, 4.98% and 5.65% of the variations in the DSI were explained by shocks to ER and OP respectively. The results obtained from VDCs combined with IRF indicate that the macroeconomic shocks explain a minority of the forecast error varia nce in the DSI, though, exchange rates and oil prices have a significant influence on the stock prices. It must be noted though that most of the shocks from the macroeconomic variables are permanent and persist for a long period. Table 6.: Variance Decomposition of DSI Period Std. Error DSI IR ER CPI OP M2 1 0.099 100.000 0.000 0.000 0.000 0.000 0.000 2 0.151 99.032 0.199 0.336 0.015 0.414 0.005 3 0.188 97.691 0.129 0.595 0.011 1.553 0.020 4 0.223 96.372 0.108 1.059 0.249 2.127 0.086 5 0.253 94.578 0.085 2.098 0.443 2.541 0.255 6 0.281 92.929 0.069 2.985 0.513 3.063 0.441 7 0.305 91.460 0.064 3.680 0.511 3.617 0.667 8 0.326 89.925 0.066 4.206 0.476 4.292 1.034 9 0.346 88.560 0.068 4.613 0.442 4.988 1.328 10 0.363 87.356 0.073 4.9 76 0.411 5.650 1.535 11 0.380 86.291 0.078 5.239 0.382 6.299 1.711 12 0.395 85.270 0.083 5.479 0.355 6.934 1.879 13 0.410 84.255 0.085 5.732 0.330 7.546 2.053 14 0.423 83.282 0.084 5.977 0.310 8.136 2.210 15 0.436 82.348 0.082 6.211 0.294 8.714 2.351 16 0.448 81.449 0.079 6.417 0.282 9.279 2.493 17 0.459 80.579 0.076 6.605 0.273 9.833 2.633 18 0.470 79.731 0.073 6.784 0.268 10.375 2.769 19 0.481 78.910 0.069 6.949 0.265 10.908 2.898 20 0.491 78.109 0.067 7.102 0.265 11.434 3.022 To test for robustness, a VAR model was constructed in first differences, and IRF and VDC drawn from its estimates. The IRF demonstrated short-run results very similar to the IRF from the VECM model. The results for the VDC from the VECM and VAR models are also similar. A very low percentage of the changes in stock prices is explained by the variables, though exchange rate explains a high proportion of the changes in stock prices. Conclusion The study investigates the long-term relations between macroeconomic variables and the Dhaka stock market prices using Johansens methodology of multivariate cointegration analysis and Vector Error Correction Model. Variables such as interest rates, exchange rates, consumer price index, crude oil prices and money supply were used to represent the macroeconomic forces while the Dhaka Stock Exchange All-Share Index was used to represent changes in the Dhaka stock market prices. The main findings revealed that there is a long-term relationship between the stock prices and the macroeconomic variables. According to the cointegration analysis and the VECM estimated in the study, the stock prices and macroeconomic variables are related significantly and in accordance with the hypothesized relationship. The interest rates were negatively related with the stock prices, implying that investors shift away from stocks when the deposit interest rates are high and vice versa. The exchange rate s are positively related with the stock prices meaning that Taka appreciation leads to lower money inflows and, hence, lower stock prices and vice versa. The consumer price index is found to be insignificant in explaining the stock prices. This was hypothesized as large price changes in Bangladesh may render an insignificant relationship between CPI and stock prices. The relationship between crude oil prices and stock prices was found to be negative and significant. The broad money supply is negatively related with the stock prices which confirms that expectations about tightening money supply in the future leads to higher interest rates and lower stock prices. This was significant at the 5% significance level. The short-term results of the VECM revealed that around 5.3% of the disequilibrium in the long-run model is corrected every month. The DSI and interest rates were negatively related with the stock prices and at the first lag; though, the latter lags were insignificant. Ex change rates, consumer price index, oil prices and money supply were also insignificant at most lags. Since the VECM results were inconclusive, the Impulse Response Functions and Variance Decompositions were undertaken. An interest rate shock causes the DSI to fluctuate initially, but a tendency to converge to equilibrium is seen. An exchange rate shock results in a large fall in the DSI initially, but the gap remains steady afterwards. A consumer price index shock leads to an increase in the DSI initially, but then the relationship becomes negative, which is consistent with the literature. Oil prices shock lead to a large increase in the DSI initially and the effect seems to increase slowly over time. Money supply shock increases the DSI over time, which supports the corporate earnings effect. The Variance Decomposition results indicate that that the macroeconomic shocks explain a small proportion of the forecast error variance in the DSI, though, exchange rates and oil prices have a significant influence on the stock prices. Most of the shocks from the macroeconomic variables are permanent and persist for a long period. In light of the analysis made in the study, policymakers and economists in Bangladesh need to be careful when they try to influence the economy through changes in key macroeconomic variables comprising the interest rates, exchange rates, consumer prices index and money supply. 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