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The relationship between South Asian stock returns and macroeconomic variables

The relationship between South Asian stock returns and macroeconomic variables
The relationship between South Asian stock returns and macroeconomic variables
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 inter-regional 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.
South Asian stock returns, local economic factors, international economic factors, principal components analysis, E44, G12, G15
0003-6846
1298-1313
Khan, Muhammad N.
fdd4dfa2-d26c-44e5-80b9-b92978bb7447
Tantisantiwong, Nongnuch
73b57288-a4dc-4456-8d1b-12b8d07dc3b4
Fifield, Suzanne G.M.
b4dfd663-dba4-46d6-bd3e-9f883aa73ff2
Power, David M.
d028e45c-8227-45db-a2d2-27dae896cc82
Khan, Muhammad N.
fdd4dfa2-d26c-44e5-80b9-b92978bb7447
Tantisantiwong, Nongnuch
73b57288-a4dc-4456-8d1b-12b8d07dc3b4
Fifield, Suzanne G.M.
b4dfd663-dba4-46d6-bd3e-9f883aa73ff2
Power, David M.
d028e45c-8227-45db-a2d2-27dae896cc82

Khan, Muhammad N., Tantisantiwong, Nongnuch, Fifield, Suzanne G.M. and Power, David M. (2015) The relationship between South Asian stock returns and macroeconomic variables. Applied Economics, 47 (13), 1298-1313. (doi:10.1080/00036846.2014.995360).

Record type: Article

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 inter-regional 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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e-pub ahead of print date: 2 January 2015
Keywords: South Asian stock returns, local economic factors, international economic factors, principal components analysis, E44, G12, G15
Organisations: Centre of Excellence for International Banking, Finance & Accounting

Identifiers

Local EPrints ID: 373541
URI: http://eprints.soton.ac.uk/id/eprint/373541
ISSN: 0003-6846
PURE UUID: 3eda2ac5-1f31-4dda-ab65-6a2997341877

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Date deposited: 21 Jan 2015 15:22
Last modified: 14 Mar 2024 18:54

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Contributors

Author: Muhammad N. Khan
Author: Nongnuch Tantisantiwong
Author: Suzanne G.M. Fifield
Author: David M. Power

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