This paper investigates the dynamic interactions between four macroeconomic variables and stock prices in Pakistan, using cointegration and Granger causality tests that are robust to structural breaks. The results strongly suggest cointegration between the stock prices and macroeconomic variables viz. consumer prices, industrial production, exchange rate and the market rate of interest. Estimates of bivariate error-correction models reveal that there is longrun bidirectional causation between the stock prices and all the said macroeconomic variables with the exception of consumer prices that only lead to stock prices. The results also provide some evidence that the stock prices are Granger-caused by changes in interest rates in the short run. However, the analysis is unable to explore any short-run causation between the stock prices and the remaining three macroeconomic variables. It may therefore be stated that the association between the health of the stock market in the sense of rising share prices and the health of the economy is only a long-run phenomenon.

(2008). Macroeconomic variables and stock market performance: testing for dynamic linkages with a known structural break [journal article - articolo]. In SAVINGS AND DEVELOPMENT. Retrieved from http://hdl.handle.net/10446/27405

Macroeconomic variables and stock market performance: testing for dynamic linkages with a known structural break

2008-01-01

Abstract

This paper investigates the dynamic interactions between four macroeconomic variables and stock prices in Pakistan, using cointegration and Granger causality tests that are robust to structural breaks. The results strongly suggest cointegration between the stock prices and macroeconomic variables viz. consumer prices, industrial production, exchange rate and the market rate of interest. Estimates of bivariate error-correction models reveal that there is longrun bidirectional causation between the stock prices and all the said macroeconomic variables with the exception of consumer prices that only lead to stock prices. The results also provide some evidence that the stock prices are Granger-caused by changes in interest rates in the short run. However, the analysis is unable to explore any short-run causation between the stock prices and the remaining three macroeconomic variables. It may therefore be stated that the association between the health of the stock market in the sense of rising share prices and the health of the economy is only a long-run phenomenon.
articolo
2008
SAVINGS AND DEVELOPMENT
Cet article analyse les interactions dynamiques entre quatre variables macroéconomiques et les prix des actions au Pakistan, en utilisant les tests de co-intégration et Granger qui sont robuste aux choc structurels. Les résultats suggèrent fortement que la co-intégration entre les prix des actions et les variables macroéconomiques : prix à la consommation, production industrielle, taux d’échange et taux d’intérêt de marché. Les estimations démontrent qu’il y a une causalité bidirectionnelle de long terme entre les prix des actions et les variables macroéconomiques susmentionnées avec l’exception des prix à la consommations. Les résultats indiquent aussi que les cours des actions are causés selon Granger par des changements des taux intérêts dans le court terme. Toutefois, l’analyse ne peut pas expliquer des relations de court terme entre les prix des actions et les autres variables macroéconomiques. On peut donc affirmer que la relation entre un état positif (augmentation des cours) du marché des actions et un état positif de l’économie est un phénomène de longue terme uniquement.
Rashid, Abdul
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/27405
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