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Do macroeconomic factors matter for stock prices in emerging countries? Evidence from panel cointegration and panel causality

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  • Sonali Madhusmita Mohapatra
  • Badri Narayan Rath

Abstract

The concurrent growth of emerging countries stock market and their economies in the last two decades raises question regarding the fundamental linkage between stock price and key macroeconomic variables. This paper makes an attempt to examine the short-run and long-run relationship between stock prices and selected macroeconomic variables using data from three leading emerging countries such as Brazil, India and China (BIC) from January 2000 to December 2012. This paper supports the existence of a significant, long-run relationship between stock prices and macroeconomic variables. The results also indicate that there is a long-run Granger causality running from key macroeconomic factors to stock prices, but in short-run, only interest rate causes to stock prices. Since the stock prices interact with the key macroeconomic variables, a proper coordination in formulating a common macroeconomic policy is required among the BIC countries.

Suggested Citation

  • Sonali Madhusmita Mohapatra & Badri Narayan Rath, 2015. "Do macroeconomic factors matter for stock prices in emerging countries? Evidence from panel cointegration and panel causality," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 7(2), pages 140-154.
    • Handle: RePEc:ids:ijsuse:v:7:y:2015:i:2:p:140-154
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    Cited by:

    1. Raghutla CHANDRASHEKAR & P. SAKTHIVEL & T. SAMPATH & Krishna Reddy CHITTEDI, 2018. "Macroeconomic variables and stock prices in emerging economies: A panel analysis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(616), A), pages 91-100, Autumn.

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