A figure of bing surveies have been conducted with an effort to find the relationship between stock market and macroeconomic variables. Many focused on developed states in more recent times. However, there has been an encouraging figure stressing on developing economic systems every bit good.
The US stock market has been explored by Chen, Roll and Ross ( 1986 ) . The writers used some macroeconomic variables to explicate stock returns in the US stock market utilizing simple statements to take a set of economic province variables that, a priori, were campaigners as beginnings of systematic plus hazard. Several of these economic variables were found to be important in explicating expected stock returns, most unusually industrial production, alterations in hazard premium and turns in the output curve. Both awaited and unforeseen rising prices rates were concluded to be negatively related to the expected stock returns.
In line with Chen, Roll and Ross ( 1986 ) surveies, Hamao ( 1988 ) determined whether the ascertained relationship between macroeconomic variables and portion returns were valid when the analysis is conducted in the Nipponese market place. The latter, besides the other macroeconomic variables included by Chen, Roll and Ross ( 1986 ) , incorporated international trade variables. Except from industrial production which appeared insignificant in plus pricing, Hamao ‘s findings were consistent with Chen, Roll and Ross ( 1986 ) research.
In their survey on whether current economic activities in Korea could explicate stock market returns, Kwon and Shin ( 1999 ) concluded that Korean stock market reflects macroeconomic variables on stock market indices. The co-integration and vector mistake rectification theoretical account illustrate that stock monetary value indices are co-integrated with a set of macroeconomic variables – that is the production index, exchange rate, trade balance and money supply – which provide a direct long tally equilibrium relation with each stock monetary value index. However, they concluded that the stock monetary value indices are non a prima index for economic variables.
Nasseh and Strauss ( 2000 ) happen support for the being of important long run relationships between stock market monetary values and domestic and international economic activity in six states viz. France, Italy, Switzerland, Germany, Netherlands and U.K. Johansen ‘s co-integration trials confirmed that stock monetary value degrees were significantly related to industrial production, concern of fabricating orders, short-run and long-run involvement rates every bit good as foreign stock monetary values, short-run involvement rates and production. Nasseh and Strauss ( 2000 ) besides used discrepancy decomposition techniques that supported the strong explanatory power of macroeconomic variables in lending to the prognosis discrepancy of stock market monetary values. They identified the utility of Johansen ‘s model for analyzing stock market and macroeconomic activity. It incorporates dynamic co-movements or coincident interactions, leting the research workers to analyze the channels through which macroeconomic variables affected plus pricing, over and above their comparative importance. Their discrepancy decomposition methods, based on a vector car arrested development with extraneous remainders, showed that macroeconomic factors explained a significant sum of the fluctuation in stock monetary values in the medium and short tallies. Nasseh and Strauss ( 2000 ) found that although stock monetary values were explained by economic basicss in the medium and short-run, the underlying volatility inherent in stock monetary values was related to macroeconomic motions in the long tally.
McMillan ( 2001 ) investigated the being of a co-integrating vector between variables such as industrial production, rising prices, money supply, involvement rate and stock market indices utilizing US informations. The findings provided positive support of co-integration between both the US market index Dow Jones Industrial Average index ( DJIA ) and the S & A ; P 500 and macroeconomic activity variables. The established relationship is positive and important for industrial production and rising prices, negative and important for long term involvement rates, and negative and undistinguished for money supply and short term involvements rates. The consequences are consistent with the belief that changes in end product which affect expected future hard currency flows have a positive consequence on stock monetary values that stocks act as an rising prices hedge and that alterations in the price reduction rate have an reverse consequence on monetary values. In add-on, discrepancy decompositions show that long-run rates explain a significant sum of variableness in stock monetary values, whilst short-run rates, industrial production and rising prices besides have some explanatory power.
The Error Correction Modeling technique was used by Maysami and Sims ( 2002, 2001a, 2001b ) to analyze the relationship between macroeconomic variables and stock returns in Hong Kong and Singapore ( Maysami and Sims 2001b ) , Malaysia and Thailand ( Maysami and Sims 2001a ) and Japan and Korea ( Maysami and Sims 2001b ) . Through the employment of Hendry ‘s attack which allows doing illations to the short tally relationship between macroeconomic variables every bit good as the long tally accommodation to equilibrium, they analysed the influence of involvement rate, money supply, existent activity, rising prices and exchange rate, along with a silent person variable to capture the impact of the 1997 Asiatic fiscal crisis. The consequences confirmed the influence of macroeconomic variables on the stock market indices in each of the six states under survey, though the type and magnitude of the associations differed depending on the state ‘s fiscal construction.
Additionally, Wongbangpo and Sharma ( 2002 ) explored the relationship between the stock returns for the ASEAN-5 states of Indonesia, Malaysia, the Philippines, Singapore and Thailand and five macroeconomic variables. By detecting both short and long tally relationships between several stock indices and the macroeconomic variables of Gross National Product ( GNP ) , the Consumer Price Index ( CPI ) , the money supply, the involvement rate and exchange rate they found that in the long-term all five stock monetary value indices were positively related to growing in end product and negatively to the aggregative monetary value degree. However, a negative long-term relationship between stock monetary values and involvement rates was noted for the Philippines, Singapore and Thailand, and was found to be positive for Indonesia and Malaysia.
Finally, causality trials detected an overall relationship between macroeconomic variables and stock monetary values for all five ASEAN equity markets. Chakravarty ( 2005 ) made an effort to analyze the causal relationship between macroeconomic variables and stock monetary value for India for the period April 1991 to December 2005 utilizing Granger causality trials. The findings revealed consistent causality consequences for some back-to-back slowdown constructions along with the optimum pick of the slowdown utilizing Akaike Information Criteria ( AIC ) and Schwartz standard ( SC ) , accordingly the consequences are robust. The nine empirical consequences suggested that exchange rate does non Granger do stock monetary value nor stock monetary value Granger cause exchange rate. The empirical consequences further suggested that the index of industrial production and the rate of rising prices Granger do the behavior of stock monetary value but does non Granger do index of industrial production and rising prices, therefore the causing is unidirectional. More so, the causal relation between the behavior of stock monetary value and M3 is unidirectional, the behavior of stock monetary value doing M3. Gold monetary value which is included in the theoretical account does non portray any relationship with stock monetary value.
Gay ( 2008 ) examines the clip series relationship between stock market index monetary values and the macroeconomic variables of exchange rate and oil monetary value for Brazil, Russia, Indian and China utilizing the Box Jenkins ARIMA theoretical account. No important relationship was found between the several exchange rate and oil monetary value on the stock market index monetary values of either state. This may be due to the influence other domestic and international macroeconomic factors on stock market returns as explained by the writer. In add-on, no important relationship was established between nowadays and past stock market returns, proposing the markets of Brazil, Russia, India and China exhibit the weak signifier of market efficiency.
Mahmood and Dinniah ( 2009 ) investigated the dynamic relationship between stock monetary values and economic variables in six Asiatic Pacific selected states of Malaysia, Korea, Thailand, Hong Kong, Japan and Australia. Monthly informations on stock monetary value indices, foreign exchange rates, CPI and industrial production index that spans from January 1993 to December 2002 are used. The focal point of the analysis is on the long tally equilibrium and short tally multivariate causality between these variables. The consequences showed the being of a long tally equilibrium relationship between and among variables in merely four states viz. Japan, Korea, Hong Kong and Australia. Refering to short run relationships, all states except from Hong Kong and Thailand indicated some interactions. Hong Kong demonstrates relationship merely between exchange rate and stock monetary value while Thailand reported important interaction merely between end product and stock monetary values.
The tabular array below summarises the empirical research and findings by assorted writers in different states under different clip skylines.
Name of Author ( s )
State under study/Period
Mukherjee and Naka ( 1995 )
Tokyo-January 1971 to December 1990
Johansen ‘s VECM
A cointegrating relationship exists and that stock monetary values contribute to this relation.
Cheung and Ng ( 1998 )
Canada, Germany, Italy, Japan, US
Johansen Cointegration techniques
Evidence of long tally co-movements between five national stock market indexes and steps of aggregative existent activity
Ibrahim ( 1999 )
Detecting that macroeconomic variables led the Malayan stock indices, he concluded that the market topographic point was informationally inefficient.
Islam ( 2003 )
Hendry ‘s attack
Statistically important short tally and long tally relationships between index and variables under survey.
Omran ( 2003 )
United arab republic
Cointegration analysis through Error Correction Mechanism
Long tally and short tally relationships between the variables.
Vuyyuri ( 2005 )
India/1992-2002 ( monthly observations )
Cointegration and Causality trials
Cointegration trial supported the long tally equilibrium relationship between fiscal and the existent sector, and the farmer causality between the fiscal sector and the existent sector of the economic system
Maghyereh ( 2002 )
Macroeconomic variables were reflected in stock monetary values.
Islam and Watanapalachaikul ( 2003 )
Strong, important long tally relationship between stock monetary values and macroeconomic factors
Christopher G, Minsoo L, Hua H, Jun. Z ( 2006 )
No grounds that the New Zealand Stock Index is a prima index for alterations in macroeconomic variables.