Effect of Macroeconomic Variables on Stock Market Performance of SAARC Countries

Abstract

Article HistoryStock market is one of the most widely followed markets in the world with a horde of transactions facilitated every day. Thus, not surprisingly a plethora of research has been dedicated to understanding the nature of these markets and what factors affect their movements and performance in general. Several studies have postulated that macroeconomic variables do tend to significantly affect stock market performance, while other studies found inconclusive relation at best. It is also worth noting that most of these studies were conducted on developed markets and rarely touched on the developing markets. On this background, the objective of this study is to examine the significance of macroeconomic variables in effecting stock market performance of SAARC countries using the OLS multiple regression Model. We have used annual data for the period [2005][2006][2007][2008][2009][2010][2011][2012][2013][2014][2015]. The findings of the study showed that macroeconomic variables i.e. exchange rate, foreign currency reserve and interest rate are all statistically significant in affecting stock market performance of SAARC countries. Whereas, inflation and money do not have a significant relationship in affecting stock market performance. Contribution/ Originality:This study is one of very few studies which have investigated the effect of macroeconomic variables on stock market performance of SAARC countries. A regression analysis on the variables establishes links the significance of the market performance with key macroeconomic indicators in the region.

Evaluation of the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria

“…This result is in agreement with the findings of (Talla 2013;Gatsimbazi et al, 2018) while disagreeing with the findings of (Ouma & Muriu, 2014;Giri & Joshi, 2017) whose studies revealed the inflation rate had significant positive impact on share prices. The result also conflicts with the findings of (Barno, 2014;Golam et al, 2017;Khalid & Khan, 2017) whose studies did not find inflation rate influencing share prices.…”

“…This result entails that interest rate does not have any significant impact on share price index, therefore, the Ho2 is hereby accepted and the alternative which states otherwise rejected. This result conflicts with the findings of (Nijam et al, 2015;Golam et al, 2017) whose studies provided evidence that interest rate positively influenced share prices. There is also a discrepancy between this result and the findings of (Arnes, 2014;Barno, 2014) whose studies revealed that interest rate had significant negative influence on stock market performance in Turkey and Ghana respectively.…”

“…Thus, Ho1 is accepted and the alternative suggestion which states otherwise rejected. However, this finding is not consistent with the findings of (Khodaparasti, 2014;Nijam, et al, 2015;Giri & Joshi, 2017;Golam et al, 2017;Khalid & Khan, 2017;Epaphra & Salema, 2018;Megaravalli & Sampagnaro, 2018) who found in their studies that exchange rate significantly and positively influenced stock market performance. The result also contradicts the findings of Khan and Khan (2018) whose study revealed that exchange rate influenced stock prices of Karachi Stock Exchange in Pakistan significantly and negatively in the short run.…”

“…The study found a long run relationship among the variables and established that inflation, exchange rate and economic growth had significant positive impact on stock prices while crude oil price affected stock prices negatively. Golam et al (2017) employed ordinary least squares multiple regression model to examine the effect of macroeconomic variables on stock market performance of South Asian Association for Regional Cooperation (SAARC) countries from 2005 to 2015. The study found evidence that exchange rate, interest rate and foreign currency reserve were all statistically significant in influencing stock market performance of the SAARC countries while inflation and money supply did not exert significant influence on the stock market returns.…”

“…Talla (2013) submits that stock exchange is the center of a network of transactions where buyers and sellers exchange securities and also determine their prices. Stock market provides long term funds to listed companies in stock exchanges by pooling in funds from various investors which allow companies to expand their businesses and also provide investors with alternative investment opportunities (Golam, Wali, Ashraful, Alam & Khan, 2017). Stock market is the engine of an economy which mobilizes capital for corporate organizations and offers investment options to the national, international, institutional and individual investors who usually aim at maximizing their returns and wealth (Nijam, Ismail & Musthafa, 2015).…”