Impact of Macro Economics Factors in Share Market
1. INTRODUCTION
As an old adage goes, “When the US gets a Cold, the rest of the World gets Pneumonia”, in the globally open economy.
One reason for this might be that Stock Market depends on the overall health of the Economy, and real Economic variables which tend to display persistence. Therefore, an interesting question in finance is: what derives stock market volatility? Understanding the nature of stock market volatility gives some important implications for policy makers, economic forecasters and investors.
Studying the impact of MacroEconomic factors such as Inflation, Interest Rate, Dollar Value and FII on conditional stock market volatility also has important implications for investors and policymakers. In many ways the performance of the economy influences the success of the stock market and vice versa. Irving Fisher found that real interest rates were equal to nominal interest rates minus expected inflation. This MacroEconomic relationship is known as the Fisher Effect (Mankiw, 1997). So, the understanding of impact of Fisher effect on stock market index through stock volatility can broaden our understanding of such risks allowing it to be priced more efficiently.
The relationship between Microeconomic variables and Share Price Movement has dominated both academician's and practitioner’s literature in recent times. It is believed that government financial policy and Microeconomic event have large influence on general economic activities in an economy including the Stock Market. This motivates many researchers to investigate the dynamic relationship between Share Price Movement and Microeconomic variables.
Preliminary research has been done using different approaches to investigate such relationship between Share Price Movement of Particular Sector and Microeconomic variables. This has been necessitated by the general perception, that Microeconomic fundamentals such as Inflation, Dollar Value, FII, Call Money Rate and
As an old adage goes, “When the US gets a Cold, the rest of the World gets Pneumonia”, in the globally open economy.
One reason for this might be that Stock Market depends on the overall health of the Economy, and real Economic variables which tend to display persistence. Therefore, an interesting question in finance is: what derives stock market volatility? Understanding the nature of stock market volatility gives some important implications for policy makers, economic forecasters and investors.
Studying the impact of MacroEconomic factors such as Inflation, Interest Rate, Dollar Value and FII on conditional stock market volatility also has important implications for investors and policymakers. In many ways the performance of the economy influences the success of the stock market and vice versa. Irving Fisher found that real interest rates were equal to nominal interest rates minus expected inflation. This MacroEconomic relationship is known as the Fisher Effect (Mankiw, 1997). So, the understanding of impact of Fisher effect on stock market index through stock volatility can broaden our understanding of such risks allowing it to be priced more efficiently.
The relationship between Microeconomic variables and Share Price Movement has dominated both academician's and practitioner’s literature in recent times. It is believed that government financial policy and Microeconomic event have large influence on general economic activities in an economy including the Stock Market. This motivates many researchers to investigate the dynamic relationship between Share Price Movement and Microeconomic variables.
Preliminary research has been done using different approaches to investigate such relationship between Share Price Movement of Particular Sector and Microeconomic variables. This has been necessitated by the general perception, that Microeconomic fundamentals such as Inflation, Dollar Value, FII, Call Money Rate and
References: 1. Kothari.C.R. (1978), ‘Research Methodology’, Vikas Publishing House Pvt Ltd, New Delhi. 3. Davis, Nicolas and Kutan, Ali, M., 2003, Inflation and output as predictors of stock returns and volatility: International evidence, Applied Financial Economics 4 5. Fang,H and J.Loo (1994) Dollar value and stock returns. International review of economics and finance.