GFJMRVol. 5July-December, 20121The

GFJMR
Vol. 5
July
-
December, 2012
1
The Effect of
Macroeconomic
Variables
on Stock Prices:
A Conceptual Framework of the
Arbitrage
Pricing Theory
Singh Shivangi
Research Scholar
Institute of Management
Nirma University
Jotwani Naresh
Research Scholar
Institute of Management
Nirma University
[e-mail]
The relationship between fundamental macroeconomic
variables
of the
economy
and stock markets is
an
essential
one.
It affects the
perspective
of monetary and fiscal policy decisions, portfolio
management and
economic development.
It has been studied that
macroeconomic
variables can influence investors' investment decisions
.
Over the world,
many researchers
have
investigate
d
the relationships between stock
market prices and
various
macroeconomic variables.
The focus of the
current
paper
is
to investigate whether
the
share price index can be
considered as a reflection of economic activities in India. This study
investigate
s
the impact of five selected macroeconomic variables on
Stock Market Liquidity of S&P CNX Nifty.
As a result of
this analysis,
a simple model of the influence of macroeconomic fundamentals on the
stock market index has been suggested.
F
or better stock market
performance, policy makers should put in place measures that will
ensure
a
stable macroeconomic environment
.
Keyw
ords:
Arbitrage Pricing Theory, Macroeconomic Fundamentals,
Stock Price
Movement.
GFJMR
Vol. 5
July
-
December, 2012
2
Well developed stock markets
accelerate economic growth
–
this
is done by providing liquidity,
risk management tools, reducing
information asymmetries and
rewarding performance and
efficiency. They also help
raise
foreign funds.
INTRODUCTION
The financial sector and the economy are always inter
-
related. Studies of the banking sector and stock
market are quite common.
Stock prices and their relationship
s
with macroeconomic variables draw
much attention from
policy makers,
academicians and
practitioners.
This relationship is an important
area to study, especially from the perspective of
monetary and fiscal policy decisions, portfolio
management, and economic development.
Stock markets enable public trading of listed shares.
Thus,
they
help transfer funds from
surplus spenders (economic agents
with excess current income over
spending) to deficit spending units
(economic agents with current
income falling short of spending)
.
This is done with higher
efficiency
as compared to tr
aditional financial
intermediaries, through
a range of
complex financial products called
securities.
The securities that are being traded
in stock markets are existing ones
–
hence it is called the secondary market
–
these securities are issued
by deficit
units in the real or financial sector, to the surplus spenders in the new issue market. Thus idle
and surplus funds are channelled to productive activities.
According to Galbraith (1955), “
the stock
market is but a mirror, which provides an image of the u
nderlying or fundamental economic situation
”.
Well developed stock markets accelerate economic growth
–
this is done by providing liquidity, risk
management tools, reducing information asymmetries and rewarding performance and efficiency. They
also help raise foreign funds.
Households with surplus funds are provided with an additional financial instrumen
t that offers more
flexible risk and liquidity dynamics. For example, an individual investor has the option of investing for
GFJMR
Vol. 5
July
-
December, 2012
3
The basic premise of this
argument lies in the famous
“
Arbitrage Pricing Theory
”
which
broadly speaks that stock
prices are determined
by some
fundamental macroeconomic
variables
–
which can influence
investors' investment decisions.
just one day, in a project that may last ten years. He or she may invest a small sum, while the project
itself may be worth million
s.
A well developed market can serve all types of lenders and borrowers.
THEORETICAL BACKGROUND:
LITERATURE REVIEW
The f
inancial literature has
included
various theoretical and empirical studies analysing the relationship
between stock market returns and macroeconomic for
ces during the last few decades.
The basic premise
of this argument lies in the famous “
Arbitrage Pricing Theory
” given by Ross (1976).
It broadly speaks
that stock prices are determined by some fundamental macroeconomic variables
–
which
can influence
inv
estors' investment decisions
.
Many authors have selected various macroeconomic variables seeking
to detect their relationship with stock market prices in several countries. Concurrently, a number of
econometric techniques
can be used, which include:
impulse response function
s
, error variance
decomposition analysis, vector error correction model, co
-
integration analysis,
Granger causality tests
and others
.
These
may be
to
check the existence of relationship between stock market prices and
macroeconomic
variables.
The focus of the present study is not new;
it is a well
-
researched area and some
studies obviously deserve special
attention.
Aggarwal (1981) found that US
stock prices are positively correlated with
the ‘trade weighted’ dollars. Soenen and
H
ennigar (1988) have found a strong
negative correlation between US stock
prices and ‘15
-
currency
-
weighted value’
of the dollar. Ma and Kao (1990)
provided some explanations for these contradictory evidences. Their study, based on six industrially
developed
economies, suggests that the currency appreciation has a negative effect on the stock market
of export
-
dominant economies and boosts the stock market of import
-
dominant economies.
GFJMR
Vol. 5
July
-
December, 2012
4
Economic literature
widely supports the
existence of joint
determination
between stock prices
and exchange rates.
Recently, there is a shift in the attention of researchers who are not onl
y interested to study the link but
also the direction of the causality between some of the key macroeconomic variables and stock prices.
Using co
-
integration and Granger causality, Bahmani
-
Oskooee and Sohrabian
(1992) have shown that
there is bidirectional
causality between stock price index (S&P 500) and effective exchange rates of
dollar. Ajayi and Mougoue (1996) examined the relationship between the two variables and found that
especially in the short
-
run for the markets in the US and the UK, an increase
in stock prices causes the
currency to depreciate. The study concluded that a rising stock market is an indicator of an expanding
economy which goes together with higher inflation expectations.
Foreign investors discount this signal
negatively and their d
emand for the currency of the economy with a booming stock market falls and it
depreciates.
Granger
et al.
(2000) investigated t
he bidirectional causality between currency depreciation and
declining stock prices, in the context of the
great Asian Crisis of 1997. They have argued that in the
markets with high capital
mobility, it is the capital
flows and not the trade
flows that det
ermine the
daily demand for currency.
As stock prices in a
particular currency fall,
foreign investors sell these
assets, hence leading to
currency depreciation.
Hence, they hypothesized
that currency will depreciate
if stock market declines,
and the stock
prices are
expected to react
ambiguously to exchange
rates
.
This is because
depreciation of currency
could either rise or lower the value of a company depending on whether the company mainly imports or
exports.
In addition,
Granger
et al.
(2000) found a strong relationship between the exchange rates and stock
prices but found no certain net effect to predict the relationship when the ‘index’ of stock prices is
considered. The causality is unidirectional with negative relationship for some c
ountries and
bidirectional for some others without a definite vector. The wide disparity of the empirical results
amongst the seven Asian countries under their study points to the fact that there is no definite clue for
the direction of causality between t
he two markets.
Economic literature widely supports the existence of

Hasil (Bahasa Indonesia) 1:

GFJMRVol. 5Juli-Desember 20121EfekEkonomi makro Variabelpada harga saham: Kerangka konseptualArbitrase Harga teoriSingh ShivangiPenelitian sarjanaInstitut manajemenUniversitas NirmaJotwani NareshPenelitian sarjanaInstitut manajemenUniversitas [e-mail] antara fundamental ekonomi makrovariabel dari ekonomi dan pasar saham an pentingsatu.Itu mempengaruhi perspektif keputusan kebijakan moneter dan fiskal, portofoliomanajemen dan pembangunan ekonomi.Telah belajar bahwa ekonomi makro variabel dapat mempengaruhi keputusan investasi investor.Seluruh dunia, banyak penelitimemilikimenyelidikidhubungan antara saham harga pasar dan berbagai variabel ekonomi makro. Fokus saat ini kertasadalahuntuk menyelidiki Apakah The indeks harga saham dapat dianggap sebagai refleksi dari kegiatan ekonomi di India. Studi ini menyelidikisdampak dari lima variabel-variabel makro ekonomi yang dipilih pada Pasar saham likuiditas dari S & P CNX Nifty.Sebagai hasil dari Analisis ini, model sederhana dari pengaruh ekonomi makro dasar pada Indeks pasar saham telah diusulkan.Fatau lebih baik pasar saham kinerja, para pembuat kebijakan harus menempatkan di tempat langkah-langkah yang akan memastikanalingkungan makro ekonomi yang stabil.Keywords:Arbitrase harga teori, fundamental ekonomi makro, Harga sahamGerakan.GFJMRVol. 5July-December, 20122Well developed stock markets accelerate economic growth –this is done by providing liquidity, risk management tools, reducing information asymmetries and rewarding performance and efficiency. They also help raise foreign funds.INTRODUCTIONThe financial sector and the economy are always inter-related. Studies of the banking sector and stock market are quite common. Stock prices and their relationshipswith macroeconomic variables draw much attention from policy makers, academicians and practitioners. This relationship is an important area to study, especially from the perspective of monetary and fiscal policy decisions, portfolio management, and economic development. Stock markets enable public trading of listed shares. Thus, theyhelp transfer funds from surplus spenders (economic agents with excess current income over spending) to deficit spending units (economic agents with current income falling short of spending). This is done with higher efficiencyas compared to traditional financial intermediaries, through a range of complex financial products called securities. The securities that are being traded in stock markets are existing ones –hence it is called the secondary market –these securities are issued by deficitunits in the real or financial sector, to the surplus spenders in the new issue market. Thus idle and surplus funds are channelled to productive activities. According to Galbraith (1955), “the stock market is but a mirror, which provides an image of the underlying or fundamental economic situation”.Well developed stock markets accelerate economic growth–this is done by providing liquidity, risk management tools, reducing information asymmetries and rewarding performance and efficiency. They also help raise foreign funds.Households with surplus funds are provided with an additional financial instrument that offers more flexible risk and liquidity dynamics. For example, an individual investor has the option of investing for GFJMRVol. 5July-December, 20123The basic premise of this argument lies in the famous “Arbitrage Pricing Theory” which broadly speaks that stock prices are determined by some fundamental macroeconomic variables –which can influence investors' investment decisions.just one day, in a project that may last ten years. He or she may invest a small sum, while the project itself may be worth millions. A well developed market can serve all types of lenders and borrowers.THEORETICAL BACKGROUND:LITERATURE REVIEWThe financial literature has included various theoretical and empirical studies analysing the relationship between stock market returns and macroeconomic forces during the last few decades. The basic premise of this argument lies in the famous “Arbitrage Pricing Theory” given by Ross (1976).It broadly speaks that stock prices are determined by some fundamental macroeconomic variables–which can influence investors' investment decisions. Many authors have selected various macroeconomic variables seeking to detect their relationship with stock market prices in several countries. Concurrently, a number of econometric techniques can be used, which include: impulse response functions, error variance decomposition analysis, vector error correction model, co-integration analysis,Granger causality tests and others.These may be tocheck the existence of relationship between stock market prices and macroeconomicvariables. The focus of the present study is not new; it is a well-researched area and some studies obviously deserve special attention.Aggarwal (1981) found that US stock prices are positively correlated with the ‘trade weighted’ dollars. Soenen and Hennigar (1988) have found a strong negative correlation between US stock prices and ‘15-currency-weighted value’ of the dollar. Ma and Kao (1990) provided some explanations for these contradictory evidences. Their study, based on six industrially developedeconomies, suggests that the currency appreciation has a negative effect on the stock market of export-dominant economies and boosts the stock market of import-dominant economies. GFJMRVol. 5July-December, 20124Economic literature widely supports the existence of joint determination between stock prices and exchange rates.Recently, there is a shift in the attention of researchers who are not only interested to study the link but also the direction of the causality between some of the key macroeconomic variables and stock prices. Using co-integration and Granger causality, Bahmani-Oskooee and Sohrabian(1992) have shown that there is bidirectionalcausality between stock price index (S&P 500) and effective exchange rates of dollar. Ajayi and Mougoue (1996) examined the relationship between the two variables and found that especially in the short-run for the markets in the US and the UK, an increasein stock prices causes the currency to depreciate. The study concluded that a rising stock market is an indicator of an expanding economy which goes together with higher inflation expectations.Foreign investors discount this signal negatively and their demand for the currency of the economy with a booming stock market falls and it depreciates. Granger et al. (2000) investigated the bidirectional causality between currency depreciation and declining stock prices, in the context of the great Asian Crisis of 1997. They have argued that in the markets with high capital mobility, it is the capital flows and not the trade flows that determine the daily demand for currency. As stock prices in a particular currency fall, foreign investors sell these assets, hence leading to currency depreciation. Hence, they hypothesized that currency will depreciate if stock market declines, and the stockprices are expected to react ambiguously to exchange rates.This is becausedepreciation of currency could either rise or lower the value of a company depending on whether the company mainly imports or exports. In addition, Granger et al. (2000) found a strong relationship between the exchange rates and stock prices but found no certain net effect to predict the relationship when the ‘index’ of stock prices is considered. The causality is unidirectional with negative relationship for some countries and bidirectional for some others without a definite vector. The wide disparity of the empirical results amongst the seven Asian countries under their study points to the fact that there is no definite clue for the direction of causality between the two markets. Economic literature widely supports the existence of

Hasil (Bahasa Indonesia) 2:

GFJMR
Vol. 5
Juli
-
Desember 2012
1
Pengaruh
Makroekonomi
Variabel
pada Harga Saham:
Sebuah Kerangka Konseptual dari
Arbitrage
Teori Harga
Singh Shivangi
Penelitian Scholar
Institute of Management
Nirma Universitas
Jotwani Naresh
Penelitian Scholar
Institute of Management
Nirma Universitas
[e-mail]
Hubungan antara fundamental makroekonomi
variabel
dari
ekonomi
dan pasar saham adalah
sebuah
penting
satu.
Ini mempengaruhi
perspektif
keputusan kebijakan moneter dan fiskal, portofolio
manajemen dan
pembangunan ekonomi.
Telah dipelajari bahwa
ekonomi makro
variabel dapat mempengaruhi keputusan investasi
investor.
Selama dunia,
banyak peneliti
memiliki
menyelidiki
d
hubungan antara saham
harga pasar dan
berbagai
variabel makroekonomi.
Fokus dari
saat
kertas
adalah
untuk menyelidiki apakah
para
indeks harga saham dapat
dianggap sebagai refleksi dari kegiatan ekonomi di India. Penelitian ini
menyelidiki
s
dampak lima variabel ekonomi makro yang dipilih pada
Likuiditas Pasar Saham dari S & P CNX Nifty.
Sebagai hasil dari
analisis ini,
model sederhana dari pengaruh fundamental makroekonomi pada
indeks pasar saham telah disarankan.
F
atau pasar saham yang lebih baik
kinerja, pembuat kebijakan harus dimasukkan ke dalam langkah-langkah tempat yang akan
menjamin
suatu
lingkungan ekonomi makro yang
stabil.
Keyw
ords:
Arbitrage Pricing Theory, Makroekonomi Dasar,
Harga Saham
Gerakan.
GFJMR
Vol. 5
Juli
-
Desember 2012
2
pasar saham Nah dikembangkan
mempercepat pertumbuhan ekonomi
-
ini
dilakukan dengan menyediakan likuiditas,
alat manajemen risiko, mengurangi
asimetri informasi dan
kinerja bermanfaat dan
efisiensi. Mereka juga membantu
meningkatkan
dana asing.
PENDAHULUAN
Sektor keuangan dan ekonomi selalu saling
-
terkait. Studi dari sektor perbankan dan saham
pasar yang cukup umum.
Harga saham dan hubungan mereka
s
dengan variabel makroekonomi menarik
banyak perhatian dari
para pembuat kebijakan,
akademisi dan
praktisi.
Hubungan ini merupakan penting
daerah untuk belajar, terutama dari perspektif
kebijakan moneter dan fiskal keputusan, portofolio
manajemen, dan pengembangan ekonomi.
Pasar saham memungkinkan perdagangan umum saham yang terdaftar.
Jadi,
mereka
membantu dana transfer dari
pemboros surplus (agen ekonomi
dengan penghasilan saat ini kelebihan atas
pengeluaran) ke unit defisit
(agen ekonomi dengan arus
pendapatan jatuh pendek dari
belanja).
Hal ini dilakukan dengan tinggi
efisiensi
dibandingkan dengan tr
keuangan aditional
perantara, melalui
berbagai
produk keuangan yang kompleks yang disebut
efek.
Efek yang diperdagangkan
di pasar saham yang yang sudah ada
-
karena itu disebut pasar sekunder
-
efek tersebut dikeluarkan
oleh defisit
unit di sektor riil atau keuangan, dengan pemboros surplus pasar masalah baru. Jadi
menganggur. Dana dan surplus disalurkan untuk kegiatan produktif
Menurut Galbraith (1955),
"stok
pasar tapi cermin, yang menyediakan gambar dari u
nderlying atau situasi ekonomi yang
mendasar".
Pasar saham Nah dikembangkan mempercepat pertumbuhan ekonomi
-
ini dilakukan dengan memberikan likuiditas, risiko
alat manajemen, mengurangi asimetri informasi dan kinerja bermanfaat dan efisiensi. Mereka
juga membantu mengumpulkan dana asing.
Rumah tangga dengan dana surplus disediakan dengan instrumen keuangan tambahan
t yang menawarkan lebih
risiko dan likuiditas dinamika fleksibel. Sebagai contoh, seorang investor individu memiliki pilihan untuk berinvestasi untuk
GFJMR
Vol. 5
Juli
-
Desember 2012
3
Premis dasar ini
argumen terletak pada terkenal
"Arbitrase Harga Theory" yang secara luas berbicara bahwa saham harga ditentukan oleh beberapa fundamental makroekonomi variabel - yang dapat mempengaruhi. Keputusan investasi investor 'hanya satu hari, dalam proyek yang bisa berlangsung sepuluh tahun. Dia mungkin menginvestasikan sejumlah kecil, sementara proyek itu sendiri mungkin layak juta s. Sebuah pasar yang berkembang baik dapat melayani semua jenis pemberi pinjaman dan peminjam. TEORITIS LATAR BELAKANG: TINJAUAN PUSTAKA The f sastra inancial telah disertakan berbagai penelitian teoritis dan empiris menganalisis Hubungan antara return pasar saham dan ekonomi makro untuk ces selama beberapa dekade terakhir. Premis dasar dari argumen ini terletak pada terkenal "Arbitrase Harga Theory" yang diberikan oleh Ross (1976). Ini secara luas berbicara bahwa harga saham ditentukan oleh beberapa variabel ekonomi makro yang mendasar - yang dapat mempengaruhi inv keputusan investasi estors '. Banyak penulis telah memilih berbagai variabel makroekonomi mencari untuk mendeteksi hubungan mereka dengan harga pasar saham di beberapa negara. Bersamaan, sejumlah teknik ekonometrik dapat digunakan, yang meliputi: impuls fungsi respon s, kesalahan varians analisis dekomposisi, kesalahan vektor correction model, co - analisis integrasi, tes kausalitas Granger dan lain-lain. Ini mungkin untuk mengecek keberadaan hubungan antara harga pasar saham dan ekonomi makro. variabel Fokus penelitian ini tidak baru, itu adalah baik - daerah diteliti dan beberapa studi jelas pantas khusus perhatian. Aggarwal (1981) menemukan bahwa US harga saham berkorelasi positif dengan para 'perdagangan tertimbang' dolar. SOENEN dan H ennigar (1988) telah menemukan kuat korelasi negatif antara saham AS harga dan '15 - mata uang - tertimbang nilai 'dolar. Ma dan Kao (1990) memberikan beberapa penjelasan untuk bukti-bukti yang bertentangan. Studi mereka, berdasarkan pada enam industri yang dikembangkan ekonomi, menunjukkan bahwa apresiasi mata uang memiliki efek negatif pada pasar saham ekspor - ekonomi dominan dan meningkatkan pasar saham impor - ekonomi yang dominan. GFJMR Vol. 5 Juli - Desember 2012 4 literatur Ekonomi luas mendukung adanya gabungan penentuan antara harga saham dan nilai tukar. Baru-baru ini, ada pergeseran dalam perhatian para peneliti yang tidak onl y tertarik untuk mempelajari link tetapi juga arah kausalitas antara beberapa variabel kunci makroekonomi dan harga saham. Menggunakan co - integrasi dan Granger kausalitas, Bahmani - Oskooee dan Sohrabian (1992) telah menunjukkan bahwa ada dua arah kausalitas antara indeks harga saham (S & P 500) dan nilai tukar efektif dolar. Ajayi dan Mougoue (1996) meneliti hubungan antara dua variabel dan menemukan bahwa terutama dalam jangka pendek - menjalankan untuk pasar di Amerika Serikat dan Inggris, kenaikan harga saham menyebabkan mata uang mengalami depresiasi. Studi ini menyimpulkan bahwa pasar saham naik adalah indikator dari perluasan ekonomi yang berjalan bersama-sama dengan ekspektasi inflasi yang lebih tinggi. Investor asing diskon sinyal ini negatif dan mereka d emand untuk mata uang ekonomi dengan pasar saham booming jatuh dan itu terdepresiasi. Granger et al. (2000) menyelidiki t ia kausalitas dua arah antara depresiasi mata uang dan penurunan harga saham, dalam konteks krisis Asia besar tahun 1997. Mereka berpendapat bahwa di pasar dengan modal yang tinggi mobilitas, itu adalah modal arus dan bukan perdagangan mengalir bahwa det cerpelai yang permintaan harian untuk mata uang. Seperti harga saham di musim gugur mata uang tertentu, investor asing menjual ini aset, maka menyebabkan depresiasi mata uang. Oleh karena itu, mereka berhipotesis bahwa mata uang akan terdepresiasi jika penurunan pasar saham, dan saham harga diharapkan untuk bereaksi ambigu untuk pertukaran tarif. Hal ini karena depresiasi mata uang bisa baik naik atau menurunkan nilai perusahaan tergantung pada apakah perusahaan terutama impor atau ekspor. Selain itu, Granger dkk. (2000) menemukan hubungan yang kuat antara nilai tukar dan stok harga tapi tidak menemukan efek bersih tertentu untuk memprediksi hubungan ketika 'index' dari harga saham yang dianggap. Kausalitas adalah searah dengan hubungan negatif untuk beberapa c ountries dan dua arah untuk beberapa orang lain tanpa vektor yang pasti. Disparitas macam hasil empiris di antara tujuh negara Asia di bawah poin studi mereka pada fakta bahwa tidak ada petunjuk pasti untuk arah kausalitas antara t dia dua pasar. Literatur Ekonomi luas mendukung keberadaan