Return Volatility and Macroeconomic Factors: A Comparison of US and Pakistani Firms

Abstract

This study explores the effect of selected economic factors on stock return volatility along with asymmetry and leverage effects on comparative basis of the New York Stock Exchange (NYSE) and Pakistan Stock Exchange (PSX). These dimensions are further investigated with respect to size and age of the firms. The daily stock returns of all the firms on both NYSE and PSX and macroeconomic factors are considered for the period 2000-2015. The results from GARCH (1, 1) revealed that all the economic factors have proven their significance in determining the stock returns volatility in both the markets with respect to firm's size and age. More precisely, a negative relationshi p is observed for market returns (MR), exchange rate (EXR), and oil returns (OIL) with stock return volatility for majority of the firms in both stock markets. Furthermore, risk-free rate (RFR) showed positive and negative effect on the stock return volatility of majority of the firms in NYSE and PSX markets respectively. However, with respect to size and age effects, firms in both the markets exhibited entirely different behavior for all the macroeconomic factors. Further, using EGARCH model, an evidence of asymmetry and leverage effect (with negative coefficient) is found in NYSE and partial evidence (both negative and positive coefficients) in PSX is observed. Again, these results vary with respect to firms' features in both the markets. Therefore, the results of the current study clearly show that there are significant differences in both markets and the investors can diversify their investments and shape their liquidity positions in both markets in order to exploit the maximum benefits from the market and firms specific factors.

Portfolio Diversification Across Islamic Vs. Conventional Banks: The Role of Macroeconomic Fundamentals in Stock Volatility

“…The financial system is an integral component of a modern economy and ensures economic growth and development (Sholpanbaeva et al, 2021). Further, the financial system is mainly based on the stock market, which contributes a significant role in soothing the financial sector and boosting the macroeconomic growth of a country (Jan et al, 2018;F. Khan et al, 2021;Singh, 2010).…”

“…Khan et al, 2021;Singh, 2010). A plethora of research studies existing in the context of both developed and emerging markets (particularly after the stock market crash in 1987) (Hammoudeh et al, 2010;Jan et al, 2018;Joseph, 2002;Karmakar, 2007) have addressed the connectivity of both i.e. stock markets and the economic fundamentals (Chinzara, 2011;F.…”

“…stock markets and the economic fundamentals (Chinzara, 2011;F. Khan et al, 2014;Jan et al, 2018). Moreover, these markets offer numerous opportunities for gain as well as to generate risk for the investors.…”

“…In general, volatility can be defined as a radical variation in the price of a financial instrument (such as a stock) in a relatively small interval (Ejem & Ogbonna, 2020;Okpara, 2011). In a similar vein, Jan et al (2018) highlighted that volatility is the risk or uncertainty in stock returns, which can be calculated by using the "annualized standard deviations" of daily fluctuations in the stock or bond price (F. Khan et al, 2014). The issue ascends when this variation becomes severe and impacts the stock markets' efficiency, usually resulting in stock market crashes (Batra & Taneja, 2020;Bhowmik, 2013;Hasan & Zaman, 2017).…”

Supply chain analysis of organic vegetable export from Bangladesh: Is contract farming a feasible solution?

“…Exploring the findings related to the affect of the mcroeconomic variables in light of the stock market of Bangladesh is an important, but understudied, cause for concern. However, there are several studies (Chang, Ilomӓki, Laurila and McAleer, 2020;Nyasha and Odhiambo, 2018;Jan and Khan, 2018;Ho and Lyke, 2017a;Tripathi and Kumar, 2016) postulate the link among various factors of the macro-environment and stock market. In Bangladesh, following Vector Autoregression (VAR) model, Nisha (2016) explains the influence of the selected variables from the macroeconomy on the DSE where the result supports the influence of money supply on return.…”