Macroeconomic Determinants of Stock Returns
Journal Title: Journal of Business Thought - Year 2016, Vol 6, Issue
Abstract
Knowledgeofsensitivityofstockreturnsisimportantforinvestment,tradeandfinancialissues.Itprovidesinsightsonstockmarketdynamicsthatareusefulforpolicymakers,investorsandtraders.UsingmonthlydatafortheperiodJanuary2007toApril2012,thisstudyexaminesthestockreturnssensitivitytofourkeymacroeconomicvariablesnamelyindustrialproduction,exports,exchangerateandinterestrate.Indexofindustrialproductionandinterestratearesignificantlyrelatedtostockpricesinthelongrun.Itimpliesthatgrowthintherealsectorleadstothebetterreturnsinthefinancial sectoras well.One possible explanationcould bethat well-performingreal sectorbuildsstrongsentimentsorexpectationsintheeconomywhichdrivestockreturns.Italsoindicatesthatstockreturnsaredrivenbydomesticindustrialproductionratherthanexports.Thesignificantinterestrateimpliesthatmonetarypolicymeasuresarecrucialindeterminingthereturnsinthestock marketinIndia.
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