Short-Run and Long-Run Effects of Macroeconomic Variables on Nepalese Stock Market

Abstract

This study examines the short run and long-run relationships between NEPSE Index with macroeconomic variables capital Expenditure, credit to the private sector, remittances, and Exports, using annual data from 1994 to 2023. The Autoregressive Distributed Lag (ARDL) approach was employed because of its suitability for small samples and mixed integration orders. The results confirm the existence of a long-run relationship between the variables. Capital Expenditure and private sector credit positively influence stock market performance, while remittances exhibit a negative long-run effect. The error correction mechanism indicates a rapid adjustment to equilibrium. These findings have important policy implications for promoting investment and enhancing the stability of Nepal’s financial markets.