Macroeconomic and Institutional Determinants of Capital Market Performance in Bangladesh: A Case of Dhaka Stock Exchange

Capital market has been playing a vital role by managing fund and capital of corporation through its operations. There are many factors within capital market and outside of it, which are influencing the performance and development for functioning properly a business domain. It helps the corporations to source their capital and perform based on their business operation. In this way, capital market performance highly related to the macroeconomic factors along with its internal factors. This paper examines the institutional and macroeconomic determinants of stock market performance using data in the last 20 years starting from 1995 to 2015. In this paper, Gross Domestic Product (GDP), Consumer Price Index (CPI), inflation rate and Foreign Direct Investment (FDI) inflows were used as the proxy of macroeconomic determinants, whereas market capitalization, total issued capital and market turnover of Dhaka Stock Exchange were the proxy of institutional determinants of capital market performance. To identify the determinants and their significance in capital market development, both descriptive and inferential statistics are used. Descriptive statistics shows the trends and characteristics of the variables, while inferential statistics reveals the strengths of independent variable to influence the dependent variable. In the findings, both institutional and macroeconomic variable significantly influence the capital market performance. Categorically, CPI and GDP as macroeconomic determinants and Total Market Capitalization as institutional determinant found significant based on their coefficient value in the ordinary least square multiple regression analysis. These findings may become a useful input to design policies and strategies for stabilizing and stimulating the capital market in Bangladesh, especially, Dhaka Stock Exchange (DSE).