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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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Publisher 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;

Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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  1. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  3. 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.
  4. Boyle, Glenn W, 1990. "Money Demand and the Stock Market in a General Equilibrium Model with Variable Velocity," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1039-53, October. [Downloadable!] (restricted)
  5. Danthine, Jean-Pierre & Donaldson, John B, 1986. "Inflation and Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 54(3), pages 585-605, May. [Downloadable!] (restricted)
  6. Gultekin, N Bulent, 1983. " Stock Market Returns and Inflation: Evidence from Other Countries," Journal of Finance, American Finance Association, vol. 38(1), pages 49-65, March. [Downloadable!] (restricted)
  7. Marshall, David A, 1992. " Inflation and Asset Returns in a Monetary Economy," Journal of Finance, American Finance Association, vol. 47(4), pages 1315-42, September. [Downloadable!] (restricted)
  8. Ely, David P. & Robinson, Kenneth J., 1997. "Are stocks a hedge against inflation? International evidence using a long-run approach," Journal of International Money and Finance, Elsevier, vol. 16(1), pages 141-167, February. [Downloadable!] (restricted)
  9. 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.
  10. Stulz, Rene M, 1986. " Asset Pricing and Expected Inflation," Journal of Finance, American Finance Association, vol. 41(1), pages 209-23, March. [Downloadable!] (restricted)
  11. Kaul, Gautam, 1987. "Stock returns and inflation : The role of the monetary sector," Journal of Financial Economics, Elsevier, vol. 18(2), pages 253-276, June. [Downloadable!] (restricted)
  12. Feldstein, Martin, 1980. "Inflation and the Stock Market," American Economic Review, American Economic Association, vol. 70(5), pages 839-47, December. [Downloadable!] (restricted)
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  13. 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. [Downloadable!] (restricted)
  14. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September. [Downloadable!] (restricted)
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
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