Impact of Exchange Rate on the CSE All Share Price Index in Bangladesh: A Vector Error Correction Model-Based Study

This study aims to investigate the intricate relationship between exchange rate fluctuations and the CSE All Share Price Index (CASPI) in the context of Bangladesh. Employing a Vector Error Correction Model (VECM) as the analytical framework, we delve into the dynamic interactions between these two key economic indicators. Our research draws upon a comprehensive dataset spanning an extended period, allowing for a thorough examination of the short-term and long-term dynamics. The study result shows the daily CSE All Share Price Index and daily foreign currency exchange rate to BDT data is non-stationary, but the 1st difference values are stationary for testing the long run and short run relationship. The study observed that there is long run as well as also short run relationship between the daily CSE All Share Price Index with daily foreign currency exchange rate to BDT. Surprisingly, we observe no positive significant effect of the CSE All Share Price Index on foreign currency exchange rates. These findings provide valuable insights into the intricate interplay between macroeconomic variables and financial markets, with practical implications for risk management, investment decisions, and policy formulation, particularly within the context of Bangladesh’s rapidly evolving financial landscape.