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Impacts of Macroeconomic Variables on the U.S. Stock Market Index and Policy Implications

Author

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  • Yu Hsing

    () (Southeastern Louisiana University)

Abstract

This paper finds that the U.S. stock market index is positively associated with real GDP, stock earnings, the trade-weighted nominal effective exchange rate, and the U.K. stock market index and negatively influenced by the government debt/GDP ratio, the M2/GDP ratio, the real Treasury bill rate, the real corporate bond yield, the expected inflation rate, and the U.K. Treasury bill rate. The choice of an appropriate exchange rate may affect empirical outcomes. Hence, we need more economic growth and better earnings to have higher stock prices. The rising government debt/GDP ratio is expected to hurt stock prices whereas the relatively low interest rate would help stock prices. A higher M2/GDP ratio reduces stock prices partly due to its potential impacts on inflation and interest rates. The recent depreciation of the U.S. dollar would work unfavorably to the U.S. stock market index.

Suggested Citation

  • Yu Hsing, 2011. "Impacts of Macroeconomic Variables on the U.S. Stock Market Index and Policy Implications," Economics Bulletin, AccessEcon, vol. 31(1), pages 883-892.
  • Handle: RePEc:ebl:ecbull:eb-11-00038
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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P84.pdf
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    Cited by:

    1. Tihana Skrinjaric, 2014. "Investment Strategy on the Zagreb Stock Exchange Based on Dynamic DEA," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 16(1), pages 129-160, April.
    2. Imran Hussain Shah & Ahmad Hassan Ahmad, 2017. "How important is the financial sector to price indices in an inflation targeting regime? An empirical analysis of the UK and the US," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 1063-1082, May.
    3. Corina Saman, 2015. "Asymmetric Interaction between Stock Price Index and Exchange Rates: Empirical Evidence for Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 90-109, December.
    4. repec:eco:journ1:2017-02-24 is not listed on IDEAS

    More about this item

    Keywords

    Stock market index; government debt or deficits; money supply; exchange rate; interest rate; foreign stock market;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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