Inflation and Stock Returns: Implication for Nigerian Stock Exchange Market

2021 ◽  
Vol 6 ◽  
pp. 1
Author(s):  
Bidemi S. Adegboyega
Keyword(s):  
Stock Returns ◽  
Inflation Rate ◽  
Stock Exchange ◽  
Share Price ◽  
Convergence To Equilibrium ◽  
Dynamic Interactions ◽  
Causality Test ◽  
Analytical Technique ◽  
Long Run ◽  
Short Run

Understanding various hypotheses often dictates the nexus between inflation and stock returns and over the years studies have failed to establish which among these hypotheses are examined in Nigeria. Therefore, this present study examines the long-run relationships and dynamic interactions between stock returns and inflation in Nigeria using quarterly data of the All Share Price Index from the Nigerian Stock Exchange and Inflation rate together with other selected macroeconomic variables such as interest rate, exchange rate and growth in real GDP from 1985Q1 to 2018Q4. The analytical technique of Vector Error Correction Model, Johansen Co-integration technique and Granger Causality test were exploited. From the results, it is evident there exists a long run relationship between stock returns and inflation in Nigeria. The short run dynamic model also revealed that the speed of convergence to equilibrium is moderate implying that there is a short run relationship between stock returns and inflation. However, in order to establish the causal links and its directions between inflation rate and stock returns, the Johansen co-integration shows that there exist a unidirectional relationship between stock return and inflation rate. This is attributable perhaps to the instability of prices of stocks noticed over time and also the study supported the Proxy hypothesis. Based on the above, it is a perfect avenue for investors to use in an attempt to hedge against inflation.

Cointegration of Asian Stock Markets: Empirical Evidence from India

2016 ◽  
Vol 6 (2) ◽  
Author(s):  
Beeralaguddada Srinivasa Veerappa
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Markets ◽  
Causality Test ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Short Run ◽  
Auto Regressive ◽  
Global Stock Markets ◽  
Indian Stock Market

At present stock return is significantly related to other global stock markets. The present paper empirically investigates the short run and long run equilibrium relationship between the stock market of India, Japan Hong Kong, Singapore, Malaysia, China, and Australia monthly data during January 1995 to December 2013. Researcher employs correlation test, multivariate co-integration framework, Vector Auto Regressive error-correction model and Granger causality test with reference to financial up evils in Asia and world viz., Asian crisis (1997/98), financial crisis (2008) Inflation conditions, Natural disasters, financial up evils etc. of long run relationship. Results find that the Indian stock market return is significantly co-integrated with long run and short run situations/causalities in Asian Stock returns.

Do ‘Shariah’ indices surpass conventional indices? A study on Dhaka Stock Exchange

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Md. Bokhtiar Hasan Aarif ◽  
Muhammad Rafiqul Islam Rafiq ◽  
Abu N.M. Wahid
Keyword(s):  
Stock Exchange ◽  
Forecast Error ◽  
Error Variance ◽  
Impulse Response Functions ◽  
Causality Test ◽  
Content Type ◽  
Long Run ◽  
Significant Difference ◽  
Short Run ◽  
Two Indices

Purpose This paper aims to examine whether the Sharīʿah indices outperform the conventional indices as evident from Dhaka Stock Exchange (DSE). To achieve the objective, the study, first, assesses the risk adjusted returns of the Sharīʿah and conventional indices and compares the same between the two indices. Second, it examines the short-run and long-run associations between the two indices. Design/methodology/approach The DSEX Sharīʿah index and DSE broad index of the DSE are used as representatives of the Sharīʿah and conventional indices, respectively. The study uses monthly data for the period 2014–2018 and applies a number of techniques such as risk adjusted returns, Johansen’s cointegration test, vector error correction model, Granger causality test, forecast error variance decomposition and impulse response functions techniques. Findings The study reveals that albeit there is no significant difference in simple mean between the two indices, the Sharīʿah index outperforms its conventional counterpart based on the risk adjusted returns. The two indices are associated only in the long-run, while no causal relationship is spotted between them. The overall results show that the Sharīʿah index has dominance over the conventional index in Bangladesh. Research limitations/implications The study could use more pairs of indices, including additional variables such as financial crisis and macroeconomic variables. Practical implications The study has important implications to investors, especially the religious Muslims and ethical ones, who are suggested to invest their funds in the Sharīʿah index without sacrificing returns, rather be monetarily more benefited. Moreover, the other investors can generate diversification benefits by adding both Sharīʿah and conventional indices in their portfolios in the short-run. Originality/value Unlike previous studies, this study endeavors to use a comprehensive methodology to conduct its analysis. Moreover, this is supposedly the first ever effort to conduct such a study in the context of Bangladesh.

Liquidity and Profitability: A Co-Integration Study

2018 ◽  
Vol 21 (02) ◽  
pp. 1850011
Author(s):  
Khairul Alom
Keyword(s):  
Firm Size ◽  
Stock Exchange ◽  
Response Analysis ◽  
Causality Test ◽  
Speed Of Adjustment ◽  
Financial Firms ◽  
Pooled Mean Group ◽  
Long Run ◽  
Short Run

This paper examines the relationship between liquidity and profitability of the non-financial firms listed in Dhaka Stock Exchange (DSE) for the period of 1998–2013. Pedroni and Johansen co-integration results show that liquidity, profitability, firm size and long-term debt (LTD) have significant co-integration relationship in the long run. The causality test results expose that a strong bidirectional casual relationship exist among the variables of liquidity and profitability, LTD and liquidity profitability and firm size in the short run. Also, there exists unidirectional causality among the variables of firm size and liquidity, profitability and LTD in the short run. Furthermore, Pooled Mean Group results show that profitability, firm size and LTD have long-run co-integration relationship with liquidity. However, in the short run, profitability and LTD significantly contribute to the liquidity and the error correction mechanism shows that speed of adjustment to equilibrium is significant within the year. Impulse response analysis indicates shocks in the firm size, LTD and profitability have positive and significant impact on liquidity.

scholarly journals Money Supply, Inflation and Economic Growth: Co-Integration and Causality Analysis

2020 ◽  
Vol 65 (2) ◽  
pp. 29-45
Author(s):  
Ayad Hicham
Keyword(s):  
Economic Growth ◽  
Money Supply ◽  
Structural Breaks ◽  
Inflation Rate ◽  
Causality Analysis ◽  
Causality Test ◽  
Long Run ◽  
Short Run ◽  
The Relationship ◽  
Natural Series

AbstractThe aim of this paper is to examine the relationship between money supply, inflation rate, and economic growth in the context of Algeria, using various econometric procedures as co-integration without and with structural breaks in addition to three different ways of causality test for the period 1970-2018, the results confirm the long-run relationship between the variables with more than three structural breaks, but with the absence of the effects of money supply and inflation rate on economic growth both in short run and long run terms, on the other hand, the causality results confirmed the existence of hidden causalities among the variables running from the cumulative components not from the natural series, and all the results support the Monetarist view of inflation though the absence of any effect of money supply on economic growth.

scholarly journals Causality Test Inflation and Stock Return in Indonesia Stock Exchange

2018 ◽  
Vol 9 (1) ◽  
pp. 29-51
Author(s):  
Ready Prima Dudesy
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Inflation Rate ◽  
Stock Exchange ◽  
Composite Index ◽  
Investment Decisions ◽  
Causality Test ◽  
Agriculture Sector ◽  
Industry Sector ◽  
Basic Industry

Investors can see the inflation rate as one of the basic investment decisions. The inflation rate has affected stock returns in overseas studies with diverse directions. Further research is important to provide an overview of the effect of Indonesia's inflation rate and stock returns that are useful for analyst to predict macroeconomic conditions as well as investment decisions. This study aims to identify the relationships between inflation and stock return in Indonesia’s Stock Exchange and identify the effect of inflationary shock to stock returns in Indonesia’s Stock Exchange. The research method used in this study are Vector Autoregression and Granger causality/Wald exogeneity block test. The result showed that Indonesia's inflation rate did not significantly affect stock returns, but when the analysis proceeded more specifically into sectoral stock returns, it was seen that Indonesia's inflation rate has significantly affected the stock returns of Basic Industry sector and Infrastructure sector. Inflation rate shocks was responded negatively by the sectors. Further findings were the causality relationship between the inflation rate of Indonesia and the stock return of Basic sector. The return of Jakarta Composite Index affected the inflation rate of Indonesia. Specific sectors that have influenced inflation rate were Agriculture sector, Basic Industry sector and Financial sector.

scholarly journals IPO Intra Industry Effects on Peer Firm's Earnings, Composition and Stock Returns

2021 ◽  
Vol VI (II) ◽  
pp. 41-48
Author(s):  
Muhammad Irfan Khadim ◽  
Samreen Fahim Babar
Keyword(s):  
Stock Returns ◽  
Stock Exchange ◽  
Time Lag ◽  
Abnormal Returns ◽  
Significance Test ◽  
Industry Effects ◽  
Cumulative Abnormal Returns ◽  
Long Run ◽  
Short Run

The present study is conducted to see how an IPO event affects the existing firm's performance within the same industry. For this purpose, 88 IPO firms were examined from Pakistan Stock Exchange (PSX) from 1998-2016. IPO is examined from three major perspectives IPO proceeds, initial returns and time Lag between IPO listing date and IPO subscription. The study uses Buy and Hold Abnormal Returns (BHAR) and Cumulative Abnormal Returns (CAR) to calculate competitor's abnormal returns. To calculate the operating performance of competitors, the Wilcoxon significance test was applied. IPO intra-industry effects are significant in the long run, whereas insignificant results are shown in the short run. In addition, IPO proceeds and abnormal returns are significant but negatively related to competitors' stock returns (long term). Moreover, Herfindahl Hirschman Index (HHI) finds IPO improves competitiveness in the industry environment. This present study is an important one from an emerging economy perspective.

scholarly journals The Lead and Lag Relationship Between Spot Market and Futures Market: Empirical Evidence From Vietnam

2020 ◽  
Vol 11 (5) ◽  
pp. 192
Author(s):  
Nguyen Anh Phong ◽  
Ho Thi Hong Minh ◽  
Ngo Phu Thanh ◽  
Tran Nguyen Thanh Son
Keyword(s):  
Stock Exchange ◽  
Impulse Response Function ◽  
Spot Market ◽  
Futures Market ◽  
Spot Price ◽  
Future Price ◽  
Causality Test ◽  
Long Run ◽  
Integration Test ◽  
Short Run

This study investigates the lead and lag relationship between Spot market and Futures market in Vietnam. In this study, we employ the data collected from stock-related database in Ho Chi Minh Stock Exchange and Ha Noi Stock Exchange. The data of daily closing prices of VN30 index (the spot price) and VN30F1M (the 1-month future price of VN30 index) are then collected. We apply various methods, namely: Granger causality test, Johansen co-integration test, Vector Error Correlation Model, Impulse Response Function and Variance Decomposition. The result of this paper is consistent with previous research. It finds strong evidence that Spot market leads Futures market in Vietnam stock market in both the short-run and long-run. Therefore, Spot market play a discovery role in which investors can obtain useful information from Spot market to improve their portfolio profit and minimize the risk. Besides, regulators can rely on this finding to come up with better policies and further develop Futures market.

Cointegration of Asian Stock Markets: Empirical Evidence from India

GIS Business ◽  
2016 ◽  
Vol 11 (5) ◽  
pp. 25-40
Author(s):  
Beeralaguddada Srinivasa Veerappa
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Markets ◽  
Causality Test ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Short Run ◽  
Auto Regressive ◽  
Global Stock Markets ◽  
Indian Stock Market

At present stock return is significantly related to other global stock markets. The present paper empirically investigates the short run and long run equilibrium relationship between the stock market of India, Japan Hong Kong, Singapore, Malaysia, China, and Australia monthly data during January 1995 to December 2013. Researcher employs correlation test, multivariate co-integration framework, Vector Auto Regressive error-correction model and Granger causality test with reference to financial up evils in Asia and world viz., Asian crisis (1997/98), financial crisis (2008) Inflation conditions, Natural disasters, financial up evils etc. of long run relationship. Results find that the Indian stock market return is significantly co-integrated with long run and short run situations/causalities in Asian Stock returns.

Multivariate Causal Estimates of Dividend Yields, Price Earning Ratio and Expected Stock Returns: Malaysian Evidence

GIS Business ◽  
2019 ◽  
Vol 14 (1) ◽  
pp. 11-20
Author(s):  
Faizatul Syuhada Abdul Fatah ◽  
Wan Mansor Wan Mahmood
Keyword(s):  
Stock Returns ◽  
Stock Return ◽  
Predictive Power ◽  
Investment Strategies ◽  
Dividend Yield ◽  
Causality Test ◽  
Stock Market Returns ◽  
Long Run ◽  
Price Earnings Ratio ◽  
Short Run

The study examines the relationship among Malaysian’s market stock return, dividend yields and price earnings ratio. Specifically, it examines the existence of long-run and short-run relationship and also their predictive power (causality) between and among market stock return, dividend yields and price earnings. Using the monthly data from 1989-2005, the study finds that all these fundamental variables have a strong long run relationship. As for the short run relationship, the results show significant positive predictive power from dividend yield to stock return and significant negative relation from stock returns to price earning ratios. In addition, applying multivariate causality test, the results show that both dividend yields and price earning ratio Granger cause (predict) the stock return. Similar results are found from stock returns and P/E ratio to dividend yield, as well as from dividend yield and stock returns to P/E ration but with lesser magnitude. Thus, fundamental variables are an important source of information in determining stock market returns and useful to investors and other market participants in deciding their investment strategies. Keywords: Stock return, dividend yield, price earning ratio, Malaysian market.

scholarly journals Money Supply and Stock Prices – A Case Study of Nigeria

2021 ◽  
Vol 04 (10) ◽  
Author(s):  
Dr. Ogbonna Udochukwu Godfrey ◽  
Keyword(s):  
Money Supply ◽  
Stock Prices ◽  
Stock Exchange ◽  
Market Price ◽  
Unit Root Test ◽  
Causality Test ◽  
Long Run ◽  
Augmented Dickey Fuller ◽  
Short Run ◽  
The Relationship

This study examined the relationship between money supply and stock prices, using E-view version 10. The empirical results of the Augmented Dickey Fuller (ADF) unit root test at 5 percent critical levels indicates that all the variables (M2 and MCAP) were not stationary at levels. However, all the variables became stationary after first differencing. Hence, the variables are of the same order of integration I (1). A cointegration test tells us that there exists a long run relationship between or among the variables and that they will not wander far apart away even though on the short run they exhibit random walk behavior. The Vector Error Correction test shows that Money supply (M2) has a significant relationship with market capitalization of the Nigerian stock exchange. The value of the Adjusted R-Squared of 0.726710 implies that Money supply (M2) explained about 72.67% systematic variations in the dependent variable (MCAP) over the observed years while the remaining 27.33% variations are explained by other determining variables outside the model. In order to further establish the relationship between money supply and stock market price, a granger causality test was carried out and it was established that there is a bi-directional causality between money supply and stock prices. The researcher therefore recommends that there should be collaboration among agencies of government in charge of money supply and stock exchange in order to make sure that sound policies are made to achieve the objective of government. Furthermore, that there should be a deliberate and concerted policy and effort to improve the Nigerian stock exchange market in line with other stock exchanges of the world, since stock prices cause money supply and vice versa.

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