Munich Personal RePEc Archive

Predictive Content of Output and Inflation For Stock Returns and Volatility: Evidence from Selected Asian Countries

Habibullah, M.S. and Baharom, A.H. and Fong, Kin Hing (2009): Predictive Content of Output and Inflation For Stock Returns and Volatility: Evidence from Selected Asian Countries.

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Abstract

This study examines the impact of inflation and output growth on stock market returns and volatility in selected Asian countries, namely India, Japan, Korea, Malaysia and Philippines. By using monthly data from 1991 to 2004 and by employing GARCH (1, 1) model, it is found that macroeconomic volatility, which is measured by movement in inflation and output growth, have a weak predictive power for stock market returns and volatility in these countries. The movements of the inflation rate have significant impact to the stock market returns, either positive or negative depending on the inflation rates and their fluctuation in that country. While output growth movements have significant effect to stock market volatility, countries with relatively higher output volatility is associated with higher conditional volatility of stock returns, which is positive effect but is negative for countries which have relatively lower output volatility.

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