Macroeconomic variables and stock returns: evidence from Singapore

Najeeb, Faiq and Masih, Mansur (2016): Macroeconomic variables and stock returns: evidence from Singapore.

Abstract

This paper investigates the Granger-causality relationship between macroeconomic variables and stock market returns. Singapore is used as a case study. The standard time series techniques are applied. The findings tend to indicate that the stock market returns in Singapore are endogenous (follower) to macroeconomic variables such as, the interest rates, exchange rates and GDP. The money supply and inflation do not seem to have any impact. Of the three, GDP is identified to be the most exogenous (leading) variable. However, GDP least explains shocks in the Stock index at a twelve period horizon, while Interest rates and exchange rates account for more explanation. Overall, investors in Singapore stock market closely follow macroeconomic conditions and hence macroeconomic variables lead (rather than lag) the stock index returns in Singapore. The paper has strong policy implications in that the paper attracts the attention of the policy makers regarding what macroeconomic variables they may manipulate to boost confidence in the local financial markets. In general, it informs the assets and fund managers on how changes in macroeconomic variables affect stock market returns.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macroeconomic Variables, Stock Returns, Granger-causality, VECM, VDC, Singapore
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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