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Macroeconomic Factors and Bank and Finance Stock Prices: The Australian Experience

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Author Info

  • Paul, Satya
  • Mallik, Girijasankar

    (University of Western Sydney, Sydney, NSW)

Abstract

This paper investigates the relationship between macroeconomic factors and stock prices in the banking and finance sector in Australia using quarterly data for the period 1980Q1-99Q1. The research methodology consists of conducting cointegration tests and estimating an error correction model for examining the long run relationship between bank and finance stock prices and macroeconomic variables such as inflation, interest rate and real GDP growth. The study reveals that the bank and finance stock prices are cointegrated with all three macroeconomic variables. The interest rate has a negative effect, whereas GDP growth has a positive effect on stock prices. Inflation has no significant effect on stock prices, which supports Fama's proxy hypothesis.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 33 (2003)
Issue (Month): 1 (March)
Pages: 23-30

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Handle: RePEc:eap:articl:v:33:y:2003:i:1:p:23-30

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Related research

Keywords: Bank; Banking; Finance; Macroeconomics; Stock Price; Stocks;

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References

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  1. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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  8. Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 186-198 National Bureau of Economic Research, Inc.
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  14. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  15. Liu, Y Angela & Hsueh, L Paul & Clayton, Ronnie J, 1993. "A Re-examination of the Proxy Hypothesis," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 16(3), pages 261-68, Fall.
  16. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
  17. Akella, Srinivas R & Greenbaum, Stuart I, 1992. "Innovations in Interest Rates, Duration Transformation, and Bank Stock Returns," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 27-42, February.
  18. Gjerde, Oystein & Saettem, Frode, 1999. "Causal relations among stock returns and macroeconomic variables in a small, open economy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(1), pages 61-74, January.
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Cited by:
  1. Khaled Hussainey & Le Khanh Ngoc, 2009. "The impact of macroeconomic indicators on Vietnamese stock prices," Journal of Risk Finance, Emerald Group Publishing, vol. 10(4), pages 321-332, August.

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