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Macroeconomic determinants of long-term stock market comovements among major EMS countries

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  • Yin-Wong Cheung
  • Kon Lai

Abstract

Long-term comovements of national stock markets in three EMS (European Monetary System) countries - France, Germany and Italy - are examined. The EMS stock markets are found to display long-term comovements governed by two common permanent components. To identify some interpretable sources of such long-term market comovements, the study explores whether they can be linked to similar comovements in macroeconomic variables, including the money supply, dividends and industrial production. Like stock prices, two common permanent components are found driving the comovements in each of these variables. Further analysis suggests that the long-term comovements in stock prices can be partly attributable to those in the macroeconomic variables, especially for the post-1987 period. The results confirm at least a limited role of these macroeconomic variables in accounting for the stock market comovements among the EMS countries.

Suggested Citation

  • Yin-Wong Cheung & Kon Lai, 1999. "Macroeconomic determinants of long-term stock market comovements among major EMS countries," Applied Financial Economics, Taylor & Francis Journals, vol. 9(1), pages 73-85.
  • Handle: RePEc:taf:apfiec:v:9:y:1999:i:1:p:73-85
    DOI: 10.1080/096031099332546
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    References listed on IDEAS

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    2. Camilleri, Silvio John & Scicluna, Nicolanne & Bai, Ye, 2019. "Do stock markets lead or lag macroeconomic variables? Evidence from select European countries," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 170-186.
    3. Frank Westermann, 2004. "Does the Euro affect the dynamic interactions of stock markets in Europe? Evidence from France, Germany and Italy," The European Journal of Finance, Taylor & Francis Journals, vol. 10(2), pages 139-148.
    4. Khan, Mashrur Mustaque & Yousuf, Ahmed Sadek, 2013. "Macroeconomic Forces and Stock Prices:Evidence from the Bangladesh Stock Market," MPRA Paper 46528, University Library of Munich, Germany.
    5. Camilo Serrano & Martin Hoesli, 2012. "Fractional Cointegration Analysis of Securitized Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 44(3), pages 319-338, April.
    6. Yu Hsing, 2011. "Macroeconomic Variables and the Stock Market: the Case of Lithuania," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 3(1), pages 031-037, June.
    7. C. Worthington, Andrew & Higgs, Helen, 2010. "Assessing Financial Integration in the European Union Equity Markets: Panel Unit Root and Multivariate Cointegration and Causality Evidence," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 457-479.
    8. Mohammad Joarder & Monir Ahmed & Tahsina Haque & Syed Hasanuzzaman, 2014. "An empirical testing of informational efficiency in Bangladesh capital market," Economic Change and Restructuring, Springer, vol. 47(1), pages 63-87, February.
    9. Taing, Siv & Worthington, Andrew, 2005. "Return Relationships Among European Equity Sectors: A Comparative Analysis Across Selected Sectors in Small and Large Economies," Journal of Applied Economics, Universidad del CEMA, vol. 8(2), pages 1-18, November.
    10. Flad, Michael & Jung, Robert C., 2008. "A common factor analysis for the US and the German stock markets during overlapping trading hours," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(5), pages 498-512, December.
    11. Matthew Serfling & Dragan Miljkovic, 2011. "Time series analysis of the relationships among (macro) economic variables, the dividend yield and the price level of the S&P 500 Index," Applied Financial Economics, Taylor & Francis Journals, vol. 21(15), pages 1117-1134.
    12. Tsutsui, Yoshiro & Hirayama, Kenjiro, 2005. "Estimation of the common and country-specific shock to stock prices," Journal of the Japanese and International Economies, Elsevier, vol. 19(3), pages 322-337, September.
    13. Orawan Ratanapakorn & Subhash Sharma, 2007. "Dynamic analysis between the US stock returns and the macroeconomic variables," Applied Financial Economics, Taylor & Francis Journals, vol. 17(5), pages 369-377.
    14. Phengpis, Chanwit & Apilado, Vince P., 2004. "Economic interdependence and common stochastic trends: A comparative analysis between EMU and non-EMU stock markets," International Review of Financial Analysis, Elsevier, vol. 13(3), pages 245-263.
    15. Shirvani, Hassan & Wilbratte, Barry, 2007. "The permanent-transitory decomposition of the stock markets of the G7 countries: A multivariate approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(2), pages 352-365, May.
    16. Ratanapakorn, Orawan & Sharma, Subhash C., 2002. "Interrelationships among regional stock indices," Review of Financial Economics, Elsevier, vol. 11(2), pages 91-108.
    17. Vardhan, Harsh & Sinha, Pankaj, 2015. "Influence of Macroeconomic Variable on Indian Stock Movement: Cointegration Approach," MPRA Paper 64369, University Library of Munich, Germany, revised 10 May 2015.
    18. Panait, Iulian & Slavescu, Ecaterina Oana, 2011. "Volatility and causality study of the daily returns on the Bucharest Stock Exchange during 2007-2011," MPRA Paper 41786, University Library of Munich, Germany.

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