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The relationship between South Asian stock returns and macroeconomic variables

Author

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  • M. N. Khan
  • N. Tantisantiwong
  • S. G. M. Fifield
  • D. M. Power

Abstract

This article investigates whether economic variables have explanatory power for share returns in South Asian stock markets. In particular, using data for four South Asian emerging stock markets over the period 1998-2012, the article examines the influence of a selection of local, regional and global economic variables in explaining equity returns; most previous studies that have examined this issue have tended to focus on only local and/or global factors. Important factors are identified by distilling the macroeconomic variables into principal components. Economic activities, real interest rates, real exchange rates and the trade balance represent local factors. Regional factors are represented by interregional trade and regional economic activity while global factors are represented by world financial asset returns and world economic activity. The vector autoregression results suggest that the South Asian markets examined are not efficient. Both local and regional factors can directly and indirectly explain Bangladeshi, Pakistani and Sri Lankan stock returns while the lagged returns of the Pakistani stock market and world economic activity can explain Indian stock returns.

Suggested Citation

  • M. N. Khan & N. Tantisantiwong & S. G. M. Fifield & D. M. Power, 2015. "The relationship between South Asian stock returns and macroeconomic variables," Applied Economics, Taylor & Francis Journals, vol. 47(13), pages 1298-1313, March.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:13:p:1298-1313
    DOI: 10.1080/00036846.2014.995360
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    References listed on IDEAS

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    1. World Bank, 2010. "World Bank South Asia Economic Update 2010 : Moving Up, Looking East," World Bank Publications - Books, The World Bank Group, number 2504.
    2. World Bank, "undated". "South Asia Economic Focus, Spring 2013 : Regaining Momentum," World Bank Publications - Reports 13267, The World Bank Group.
    3. World Bank, 2013. "Trends and Determinants of Foreign Direct Investment in South Asia," World Bank Publications - Reports 16522, The World Bank Group.
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    Cited by:

    1. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2017. "Interest rate dynamic effect on stock returns and central bank transparency: Evidence from emerging markets," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 951-962.
    2. Syed Jawad Hussain Shahzad & Dene Hurley & Román Ferrer, 2021. "U.S. stock prices and macroeconomic fundamentals: Fresh evidence using the quantile ARDL approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3569-3587, July.
    3. Mesagan Peter Ekundayo & Amadi Nkem Agatha, 2017. "The Efficiency Market Theory: A Case of Commercial Banks Stocks in Nigeria," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 583-587, December.
    4. Malik Shahzad Shabbir & Laila Refiana Said & Irem Pelit & Esma Irmak, 2023. "The Dynamic Relationship among Domestic Stock Returns Volatility, Oil Prices, Exchange Rate and Macroeconomic Factors of Investment," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 560-565, May.
    5. Ahmed, Walid M.A., 2020. "Stock market reactions to domestic sentiment: Panel CS-ARDL evidence," Research in International Business and Finance, Elsevier, vol. 54(C).
    6. Mohammad Alomari & David. M. Power & Nongnuch Tantisantiwong, 2018. "Determinants of equity return correlations: a case study of the Amman Stock Exchange," Review of Quantitative Finance and Accounting, Springer, vol. 50(1), pages 33-66, January.
    7. Ahmed, Walid M.A., 2020. "Corruption and equity market performance: International comparative evidence," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    8. Md. Qamruzzaman & Ananda Bardhan & Summatun Nasya, 2020. "Nexus between Remittance, Nonperforming Loan, Money Supply, and Financial Volatility: An Application of ARDL," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 8(1), pages 11-29.

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