Macroeconomic Factors of Emerging Stock Market: The Evidence from Thailand

Abstract

This paper aims to examine the importance of macroeconomic factors to determine the performance of stock market. The regression analysis is used to examine this relationship. The result shows that macroeconomic variables can explain stock return significantly after adjusting for some lags of data availability. Moreover, the lead-lag relationship is examined by Vector Autoregression model and Granger causality test. They reveal that macroeconomic variables are less important to predict future stock return whereas stock return can be used to predict macroeconomic variables more. In the other word, stock return is good candidate as a leading economic indicator. Finally, the variance decomposition technique reveals that interest rate is the most important macroeconomic variable to explain the variance in stock return. However, it is clearly noticed that all macroeconomic variables can explain only a little variance in stock return.

İşsi̇zli̇k Oranlari Ve Hi̇sse Senedi̇ Geti̇ri̇leri̇: Oecd Ülkeleri̇ Üzeri̇ne Bi̇r Çalişma

“…This result is also similar to studies of Singh,T. et al(2011), and Tangjitprom (2011) done on Taiwan, Turkey and Thailand respectively stating that unemployment doesn't have any significant influence on stock returns. Our study finds a unidirectional causality between the variables.…”

“…(2016) discloses the presence of long run relation between the BSE Sensex and select macroeconomic indicators viz., Exchange Rate, wholesale price index, T-bill rates and M3 in their study in India. Pal & Mittal (2011) & Gunasekarage et al (2004 also showed a significant relationship between macroeconomic variables and stock returns, but a different outcome has been observed in the study of Tangjitprom (2011) who found insignificant relationship between Interest rate, exchange rate and stock returns in his study on Thailand. Tangjitprom (2011) cited unemployment rate as a factor that represents general business condition and business cycle of a country.…”

“…Pal & Mittal (2011) & Gunasekarage et al (2004 also showed a significant relationship between macroeconomic variables and stock returns, but a different outcome has been observed in the study of Tangjitprom (2011) who found insignificant relationship between Interest rate, exchange rate and stock returns in his study on Thailand. Tangjitprom (2011) cited unemployment rate as a factor that represents general business condition and business cycle of a country. Chen et al, (1986) suggested a number of factors in their study that can be analyzed while observing stock returns, unemployment rate is one of them.…”

“…Singh,T. et al(2011) and and Tangjitprom (2011) also found that unemployment doesn't have any significant influence on stock returns in Taiwan, Turkey and Thailand respectively. Tapa N. et al (2016) in their study during 1994-2016 on South Africa also rejects the idea of unemployment being a good predictor for stock market returns.…”

Causal Relationship between Aggregate Economic Variables and Stock Market (Evidence from Pakistan)

“…Empirical studies showed that the performance of stock exchange in emerging market is the good leading indicator for future macroeconomic conditions. Tangjitprom [23] proved this phenomenon in his study. Mahmood and Dinniah [24] studied this relationship for six Asia pacific countries and found that there is short term relationship between economic factors and capital markets.…”