Spss
International Business & Economics Research Journal – March 2008
Volume 7, Number 3
Effect Of Macroeconomic Variables On Stock Market Returns For Four Emerging Economies: Brazil, Russia, India, And China
Robert D. Gay, Jr., (Email: rgay@nova.edu), Nova Southeastern University
ABSTRACT The relationship between share prices and macroeconomic variables is well documented for the United States and other major economies. However, what is the relationship between share prices and economic activity in emerging economies? The goal of this study is to investigate the timeseries relationship between stock market index prices and the macroeconomic variables of exchange rate and oil price for Brazil, Russia, India, and China (BRIC) using the Box-Jenkins ARIMA model. Although no significant relationship was found between respective exchange rate and oil price on the stock market index prices of either BRIC country, this may be due to the influence other domestic and international macroeconomic factors on stock market returns, warranting further research. Also, there was no significant relationship found between present and past stock market returns, suggesting the markets of Brazil, Russia, India, and China exhibit the weak-form of market efficiency. Keywords: macroeconomics, exchange rates, oil prices, stock prices, Brazil, Russia, China, and time-series
1.
INTRODUCTION
I
n recent The Economist articles concerning the shortfall of buyers of developed countries’ assets, it was mentioned this shortfall could be made up by adding investors from emerging economies. However, for this to happen, continued growth in the emerging financial markets (EFMs) needs to continue their respective expansion, pushed by external investors. Wilson and Purushothaman (2003) identified four emerging markets (Brazil, Russia, India, and China or BRICs) which together could be larger in U.S. dollar terms than the G6 within the next forty years. The BRICs are the four biggest
Volume 7, Number 3
Effect Of Macroeconomic Variables On Stock Market Returns For Four Emerging Economies: Brazil, Russia, India, And China
Robert D. Gay, Jr., (Email: rgay@nova.edu), Nova Southeastern University
ABSTRACT The relationship between share prices and macroeconomic variables is well documented for the United States and other major economies. However, what is the relationship between share prices and economic activity in emerging economies? The goal of this study is to investigate the timeseries relationship between stock market index prices and the macroeconomic variables of exchange rate and oil price for Brazil, Russia, India, and China (BRIC) using the Box-Jenkins ARIMA model. Although no significant relationship was found between respective exchange rate and oil price on the stock market index prices of either BRIC country, this may be due to the influence other domestic and international macroeconomic factors on stock market returns, warranting further research. Also, there was no significant relationship found between present and past stock market returns, suggesting the markets of Brazil, Russia, India, and China exhibit the weak-form of market efficiency. Keywords: macroeconomics, exchange rates, oil prices, stock prices, Brazil, Russia, China, and time-series
1.
INTRODUCTION
I
n recent The Economist articles concerning the shortfall of buyers of developed countries’ assets, it was mentioned this shortfall could be made up by adding investors from emerging economies. However, for this to happen, continued growth in the emerging financial markets (EFMs) needs to continue their respective expansion, pushed by external investors. Wilson and Purushothaman (2003) identified four emerging markets (Brazil, Russia, India, and China or BRICs) which together could be larger in U.S. dollar terms than the G6 within the next forty years. The BRICs are the four biggest