The relationship between South Asian stock returns and macroeconomic variables

M. N. Khan, N. Tantisantiwong (Lead / Corresponding author), S. G. M. Fifield, D. Power

    Research output: Contribution to journalArticle

    5 Citations (Scopus)

    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.
    Original languageEnglish
    Pages (from-to)1298-1313
    Number of pages16
    JournalApplied Economics
    Volume47
    Issue number13
    DOIs
    Publication statusPublished - 2015

    Fingerprint

    Macroeconomic variables
    Factors
    Asia
    Stock returns
    Economic activity
    Economic variables
    Principal components
    Financial assets
    Emerging stock markets
    Stock market
    Trade balance
    Asset returns
    Asian stock markets
    Interregional trade
    Real exchange rate
    Regional economics
    Vector autoregression
    Equity returns

    Keywords

    • South Asian stock returns
    • local economic factors
    • international economic factors
    • Principal components analysis
    • E44
    • G12
    • G15

    Cite this

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    title = "The relationship between South Asian stock returns and macroeconomic variables",
    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.",
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    The relationship between South Asian stock returns and macroeconomic variables. / Khan, M. N.; Tantisantiwong, N. (Lead / Corresponding author); Fifield, S. G. M.; Power, D.

    In: Applied Economics, Vol. 47, No. 13, 2015, p. 1298-1313.

    Research output: Contribution to journalArticle

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    AB - 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.

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