Consistency Of The Stock Market In Anticipating Economic Cycles

This paper examines how consistent the stock market, as measured by the S&P 500 Index, has been in anticipating the effect economic contractions and expansions have on dividends/earnings.  In 22 of 26 instances, the S&P 500 reached a peak and trough prior to the beginning and ending of 13 economic contractions during the period 1929-2009.  Changes in dividends/earnings are directly related to economic activity as measured by changes in real GDP.  An economic recession or expansion lowers or raises the intrinsic value of the expected dividend/earnings stream.  Actual stock prices, as measured by the S&P 500, change in the same direction as the change in intrinsic value with the historical evidence showing the high degree of consistency the stock market has in anticipating economic contractions and expansions.

Download Full-text

Modelling Macroeconomic Determinants Of Stock Market Prices: Evidence From Namibia

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v28i5.7230 ◽

2012 ◽

Vol 28 (5) ◽

pp. 871 ◽

Cited By ~ 12

Author(s):

Joel Hinaunye Eita

Keyword(s):

Stock Market ◽

Interest Rates ◽

Money Supply ◽

Stock Prices ◽

Economic Activity ◽

Market Price ◽

Font Size ◽

Market Prices ◽

Econometric Methodology ◽

Macroeconomic Determinants

This paper investigates the macroeconomic determinants of stock market prices in Namibia. The investigation was conducted using a VECM econometric methodology and revealed that Namibian stock market prices are chiefly determined by economic activity, interest rates, inflation, money supply and exchange rates. An increase in economic activity and the money supply increases stock market prices, while increases in inflation and interest rates decrease stock prices. The results suggest that equities are not a hedge against inflation in Namibia, and contractionary monetary policy generally depresses stock prices. Increasing economic activity promotes stock market price development.

Download Full-text

The price of the lockdown: The effects of social distancing on the Indian economy and business during the COVID-19 pandemic

Ekonomski horizonti ◽

10.5937/ekonhor2101085b ◽

2021 ◽

Vol 23 (1) ◽

pp. 85-99

Author(s):

Hasnan Baber ◽

Rao Tripati

Keyword(s):

Exchange Rate ◽

Stock Market ◽

Stock Prices ◽

Economic Activity ◽

International Travel ◽

Business Activity ◽

Religious Activities ◽

Social Distancing ◽

The Exchange Rate ◽

The Impact

The decision on immediate lockdown in India put economic, social and religious activities to a grinding halt. The paper examines the impact of the lockdown and social distancing policies on economic activities in India, using a multivariate econometric model for the data collected in the period from 1st January to 31st August 2020. While the social distancing policy is captured in terms of internal movement, domestic travel and international travel restrictions, its effect on the economic activity and the business activity is captured through stock prices, purchasing managers' index and the exchange rate. Confirmed COVID-19 cases and related deaths are also used as the independent variables. The results reveal a significant negative impact of social distancing policies on the economic activity and the business activity, the stock market and the exchange rate. Furthermore, the economic stimulus provided by the Government could not bring a positive influence on the stock market.

Download Full-text

Understanding the Interdependency between the Nifty 50 Future Index and the Advanced Future Stock Market through Econometrics

International Journal of Recent Technology and Engineering - 2 ◽

10.35940/ijrte.d7880.118419 ◽

2019 ◽

Vol 8 (4) ◽

pp. 3660-3664

Keyword(s):

Hong Kong ◽

Stock Market ◽

Granger Causality ◽

Foreign Exchange ◽

Financial Market ◽

Stock Prices ◽

Economic Condition ◽

The Future ◽

Bidirectional Movement ◽

High Degree

In recent times the stock market is accepted as a tool to measure the economic condition of a nation. It is found that the Indian financial market as highly volatile due to the lower value of rupees in foreign exchange with the dollar. This motivated the researchers to measure the interdependencies of [Nifty 50 future (India), Nikkei 225(Japan), NASDAQ 100 Futures (USA), Dow Jones 30 (USA), SSEC (China), Hang Seng Future (Hong Kong), and FTSE 100 (London)]. The analysis covers monthly stock prices for a period of 10years from April 2008 to March 2018. The measurement of interdependencies is studied through granger causality and correlation after the confirmation of the non-normality of data and stationary of data. The result shows a high degree of correlation between NASDAQ and Dow Jones shows 98.76% followed by 96.89% between Nifty 50 future and NASDAQ. The co-movement result of Nifty 50 future through granger causality states Nifty 50 future can explain the future stock market of Nikkei (Japan) and SSEC (China) and the Hang Seng future (Hong Kong) has a bidirectional movement with Nifty 50 futures. The study is useful for the investors to identify the interdependencies of the indices and understand the movement in a significant manner.

Download Full-text

An Empirical Analysis of Macroeconomic Variability on the Ghanaian Stock Market: A Vector Autoregression Approach

International Finance and Banking ◽

10.5296/ifb.v3i2.9821 ◽

2016 ◽

Vol 3 (2) ◽

pp. 49

Author(s):

Beverly Acquah

Keyword(s):

Stock Market ◽

Interest Rates ◽

Stock Prices ◽

Economic Activity ◽

Price Index ◽

Vector Autoregression ◽

Negative Relationship ◽

Commodity Prices ◽

Commodity Price ◽

Macroeconomic Indicators

This study investigates the dynamic interrelationships among stock prices and selected macroeconomic indicators namely; economic activity, global commodity price index, inflation and interest rates in Ghana. By employing a Vector Autoregression (VAR) Model, the empirical results reveal that stock prices depreciate with an increase in global commodity prices and interest rates indicating a negative relationship. On the other hand, stock prices appreciate with an increase in inflation and economic activity indicating a positive relationship. Examining stock market variability on the selected macroeconomic variables also showed that inflation and interest rates respond negatively to changes in asset prices while the stock market itself is not found to be a leading indicator for economic activity. The evidence suggests that the listed equities on the GSE are a hedge against inflation in Ghana. Increasing economic activity over time is advantageous for the Ghanaian stock market.

Download Full-text

Macroeconomic Influence on the Nepalese Stock Market

NRB Economic Review ◽

10.3126/nrber.v31i1.35307 ◽

2019 ◽

Vol 31 (1) ◽

pp. 47-64

Author(s):

Mukti Bahadur Khatri

Keyword(s):

Foreign Direct Investment ◽

Exchange Rate ◽

Interest Rate ◽

Stock Market ◽

Money Supply ◽

Stock Prices ◽

Economic Activity ◽

Direct Investment ◽

Negative Relationship ◽

Short Run

This study examines the dynamic relationship among the stock market and macroeconomic factors such as nominal domestic variables (inflation, money supply, and interest rate), real economic activity (gross domestic product) and foreign variable (exchange rate and foreign direct investment) of Nepal. It has used Johansen and Juselius (1990) method of multivariate cointegration for the period Mid-July 1994 to Mid-July 2015. The finding of this study shows that the stock prices are positively and significantly related to money supply. Real economic activity and interest rate have insignificant and negative relationship with the stock prices. Similarly, foreign direct investment, inflation (CPI) and exchange rate with US dollar have a positive and insignificant relationship with the Nepalese stock market. Accordingly, the VEC estimates suggest that there is no significant effect of macroeconomic variables to the Nepalese stock price in the short run. In general, the presence of cointegration and causality suggest that Nepalese stock market is not efficient in both the short run and the long run.

Download Full-text

Taking the Pulse of the Real Economy Using Financial Statement Analysis: Implications for Macro Forecasting and Stock Valuation

The Accounting Review ◽

10.2308/accr-50632 ◽

2013 ◽

Vol 89 (2) ◽

pp. 669-694 ◽

Cited By ~ 50

Author(s):

Yaniv Konchitchki ◽

Panos N. Patatoukas

Keyword(s):

Stock Market ◽

Economic Activity ◽

Financial Statement ◽

Gdp Growth ◽

Real Economy ◽

Market Returns ◽

Financial Statement Analysis ◽

Stock Market Returns ◽

Real Gdp ◽

Predictive Content

ABSTRACT In this study, we hypothesize and find that financial statement analysis of firm profitability drivers applied at the aggregate level yields timely insights that are relevant for forecasting real economic activity. We first show that focusing on the 100 largest firms offers a cost-effective way to extract information embedded in accounting profitability data of the entire stock market portfolio. We then show that accounting profitability data aggregated across the 100 largest firms have predictive content for subsequent real Gross Domestic Product (GDP) growth. We also show that stock market returns have predictive content for future real GDP growth, while their predictive power varies with the length of the measurement window with annual stock market returns being the most powerful. Importantly, we find that the predictive content of our indices of aggregate accounting profitability drivers is incremental to that of annual stock market returns. An in-depth investigation of consensus survey forecasts shows that professional macro forecasters revise their expectations of real economic activity in the direction of the predictive content of aggregate accounting profitability drivers and stock market returns. Although macro forecasters are fully attuned to stock market return data, their forecasts of real GDP growth can be improved in a statistically and economically significant way using our indices of aggregate accounting profitability drivers. Our findings suggest that professional macro forecasters and stock market investors do not fully impound the predictive content of aggregate accounting profitability drivers when forecasting real economic activity. In additional analysis, we examine the association between stock market returns and the portion of subsequent real GDP growth that is predictable based on our indices of aggregate accounting profitability drivers but that is not anticipated by stock market investors. We find that this portion is positively related to stock market returns, suggesting that the macro predictive content of aggregate accounting profitability drivers is relevant for stock valuation. Overall, our study brings financial statement analysis to the forefront as an incrementally useful tool for gauging the prospects of the real economy that should be of interest to academics and practitioners. JEL Classification: E01; E32; E60; M41. Data Availability: Data are available from public sources indicated in the text.

Download Full-text

The Stock Market and the Economy in Pakistan

The Pakistan Development Review ◽

10.30541/v40i2pp.107-114 ◽

2001 ◽

Vol 40 (2) ◽

pp. 107-114 ◽

Cited By ~ 10

Author(s):

Fazal Husain ◽

Tariq Mahmood

Keyword(s):

Stock Market ◽

Error Correction ◽

Stock Prices ◽

Economic Activity ◽

Aggregate Demand ◽

Annual Data ◽

Consumption Expenditure ◽

Long Run ◽

Investment Spending ◽

Macro Variables

This paper re-examines the causal relationship between stock prices and macro variables like consumption expenditure, investment spending, and economic activity (measured by GDP) in Pakistan. Using annual data from 1959-60 to 1998-99 and applying cointegration and error correction analysis, the paper indicates the presence of long-run relationship between stock prices and macro variables. Regarding the cause and effect relationship, the analysis indicates a one-way causation from macro variables to stock prices, implying that in Pakistan fluctuations in macro variables cause changes in stock prices. The findings suggest that the stock market in Pakistan is not that developed to play its due role in influencing aggregate demand. A disturbing feature of the stock market in Pakistan is that it cannot be characterised as the leading indicator of economic activity. In the absence of other strong indicators, shooting up of stock prices may indicate a speculative bubble.

Download Full-text

Sector Rotation with Leading Macroeconomic Indicators

10.46610/jesfr.2022.v03i01.001 ◽

2022 ◽

Vol 3 (1) ◽

Author(s):

Manan Jain

Keyword(s):

Stock Market ◽

Consumer Durables ◽

Real Gdp ◽

Statistical Measures ◽

Gdp Growth Rate ◽

Time Period ◽

Macroeconomic Indicators ◽

Degree Of Association ◽

High Degree ◽

Sector Rotation

In this study, an attempt has been made to examine whether the theory of sector rotation has been empirically valid in the Indian equity market, during the period April, 2000 to March, 2020. The time period has been divided into many sub-periods according to the real GDP growth rate and the annualized returns of eleven stock market indices have been analyzed in different periods. Going forward, leading macroeconomic indicators, which coincide with overall economy, have been taken and their association with stock market indices have been analyzed through statistical measures to assess any possible forecasting. In the first part of the study, cyclical and non-cyclical sectors have been found to beat the benchmark index during periods of growth and stagnancy, respectively, but no particular ordinality was observed. Amongst the leading economic variables, M3 Money Supply was found to have high degree of association with some indices, namely Sensex, Healthcare, CDGS, Consumer Durables and IT, but no linear relation was observed.

Download Full-text

Could the Stock Market Adjust Itself? An Empirical Study Based on Mean Reversion Theory

Journal of Systems Science and Information ◽

10.21078/jssi-2020-097-19 ◽

2020 ◽

Vol 8 (2) ◽

pp. 97-115

Author(s):

Shuangjie Li ◽

Xuefeng Hu ◽

Liming Wang

Keyword(s):

Stock Market ◽

Empirical Study ◽

Stock Prices ◽

Intrinsic Value ◽

Mean Reversion ◽

Relative Price ◽

Regulatory Effect ◽

Intrinsic Values ◽

Key Factor

AbstractThis paper mainly studies whether and how stock prices fluctuate around their intrinsic values. Based on data from 10 stock markets for the period between 2000 and 2018, we demonstrate that the relative price fluctuates around and approaches the intrinsic value in the long term. For the ten markets, the relative price crosses the intrinsic value on average once in 3 ∼ 4 years. Profitability growth is a key factor in rising stock prices, but the level of valuations in the market has a regulatory effect to the growth of price in the future: For every 1 % increase in valuation, the price tends to decline by 0.26% in the next year, 0.74% in the next 3 years.

Download Full-text

Economic growth and drivers of stock returns

From Main Street to Wall Street ◽

10.1093/oso/9780198866404.003.0005 ◽

2021 ◽

pp. 61-77

Author(s):

Jesper Rangvid

Keyword(s):

Economic Growth ◽

Stock Market ◽

Stock Returns ◽

Empirical Evidence ◽

Stock Prices ◽

Economic Activity ◽

Share Prices ◽

Earnings Per Share ◽

Buy Back

This chapter studies how yields, growth, and valuation changes, introduced in the previous chapter, relate to economic activity in the long run.The chapter discusses reasons why there could be a relation between drivers of stock returns and economic growth in the first place. It also presents the empirical evidence. Aggregate earnings has historicallylined up with growth in total economic activity.Also, GNP per capitahas grown alongside stock prices, dividends per share, and earnings per share. Since the 1980s, though, share prices have risen relative to earnings and dividends, partly because firms have used earnings to buy back shares. Similarly, the aggregate value of the stock market has outpaced aggregate GDP during recent decades. The chapter discusses potential explanations.

Download Full-text