Do Shocks of Macroeconomic Variables Affect Stock Market
Keywords:
Stock market, Exchange rate, autoregression, Inflation, Vector, CointegrationAbstract
Research purpose: This empirical study aims to portray exchange rate and inflation shocks and its impact on stock market of nine Asia-Pacific countries, which include Bangladesh, India, Indonesia, China, Malaysia, Philippines, Singapore, South Korea, and Thailand.
Design/methodology/approach: Time series econometric models are undertaken by utilizing the secondary data from 2003 to 2022, where the stationarity condition of each variable follows the test named Augmented Dickey-Fuller (ADF). To underscore this relationship, the Johansen Cointegration Test has been applied, and based on the cointegration results, the type of the Vector Autoregression model is confirmed.
Findings: Applying unified econometric methods to compare the selected countries, different scenarios have been noticed. Key outputs can be highlighted as China has a long-term relationship and India has a short-term relationship between the exchange rate, inflation, and the stock market. Originality/value: Inconclusive findings in the existing empirical research have been noticed in cases related to the comparative exploration of interactions among exchange rate, inflation, and stock
market in selected countries of the Asia-Pacific region. Thus, findings of the present study should indicate new insights. Practical implications: A growing body of evidence suggests that fluctuations in the exchange rate
and inflation affect the stock market. Hence, empirical findings will inform investment decisions for various stakeholders in the Asia-Pacific region.
Research limitations: Interactions among the selected variables are yet to be understood since the results of the study do not express a typical regional pattern. Further research can be conducted by including more monetary dynamics.
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