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Abstract
This study is conducted to measure the effect of macroeconomic variables on stock market performance in Nepal where dependent variable is NEPSE index return and independent variables are base rate, inflation rate, exchange rate, broad money, foreign direct investment and gross domestic product of each years starting from FY BS 1994 to FY BS 2023 of 30 years of macroeconomic variables were taken as confined as time series data. The descriptive and casual research design has been used. The secondary sources of data were obtained from annual report of the Nepal Stock Exchange, ministry of finance and economic bulletin of Nepal Rastra Bank. The study explores the Pearson correlation coefficients for NEPSE with various economic variables, revealing a range of significant relationships. NEPSE shows a strong positive correlation with USD, M2, and FDI, all statistically significant at the 0.01 level, indicating a robust association with the stock market. However, BR shows a weak, marginally significant negative correlation with NEPSE at the 0.10 levels, while the correlation with CPI and GDP is weak and statistically insignificant, suggesting minimal impact from inflation and overall economic growth. The regression analysis further supports these findings, showing that BR and M2 are significantly influence NEPSE, with BR having a negative but M2 is positive. Other variables such as CPI, USD, FDI and GDP lack significant
relationships with NEPSE, highlighting that currency strength, money supply, and foreign investment are the most influential factors, while domestic indicators like inflation and GDP have minimal relevance in explaining NEPSE’s movements. Keywords: Index return, base rate, exchange rate, broad money, FDI and GDP.