Macroeconomic Factors Driving the Emergence of Financial Derivatives Market in Bangladesh
DOI:
https://doi.org/10.70112/ajms-2026.15.1.4319Keywords:
Macroeconomic Factors, Derivatives Market , Financial Derivatives , Stock Market, VolatilityAbstract
This study explores the macroeconomic factors influencing stock market volatility in Bangladesh to assess the necessity of introducing a financial derivatives market. Using annual data spanning 26 years, from 1998 to 2023, the research employs descriptive statistics, factor analysis, correlation, and regression techniques to identify significant determinants of volatility in the capital market. The analysis reveals that fluctuations in the real interest rate have a statistically significant impact on stock market volatility, while other variables such as GDP growth, inflation, budget size, and export and import growth exhibit moderate to weak influence. Factor analysis extracted three uncorrelated components, with the second factor-driven primarily by real interest rates-emerging as the most influential. The findings suggest that macroeconomic instability underscores the urgent need to introduce financial derivatives such as interest rate swaps and currency futures to provide effective risk management tools. The study recommends that policymakers establish a supportive regulatory framework, strengthen financial infrastructure, and enhance market awareness to ensure the successful inception of a financial derivatives market in Bangladesh.
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