Jurnal Pengurusan 24(2004) 47-77
Relationship between Macroeconomic Variables
and Stock Market Indices: Cointegration
Evidence from Stock Exchange of
Singapore’s All-S Sector Indices
Ramin Cooper Maysami
Lee Chuin Howe
Mohamad Atkin Hamzah
The relationship between macroeconomic variables and stock market returns is, by now, well-documented in the literature. However, a void in the literature relates to examining the cointegration between macroeconomic variables and stock market’s sector indices rather than the composite index. Thus in this paper we examine the long-term equilibrium relationships between selected macroeconomic variables and the Singapore stock market index (STI), as well as with various Singapore Exchange Sector indices—the ﬁnance index, the property index, and the hotel index. The study concludes that the Singapore’s stock market and the property index form cointegrating relationship with changes in the short and long-term interest rates, industrial production, price levels, exchange rate and money supply. Implications of the study and suggestions for future research are provided.
Hubungan antara pembolehubah makroekonomi dengan pulangan pasaran saham, sehingga kini, sudah banyak dihasilkan dalam karya lepas. Bagaimanapun, masih terdapat kekosongan dalam literatur ini mengenai hubungan kointegrasi antara pembolehubah ekonomi makro dengan indeks sektoral dalam pasaran saham berbanding kajian berkatian dengan indeks komposit. Justeru itu, dalam kertas ini, kami mengkaji hubungan keseimbangan jangka panjang antara beberapa pembolehubah ekonomi makro yang terpilih, dengan indeks pasaran saham Singapura (STI) serta beberapa indeks sektoral – indeks kewangan, indeks hartanah, dan indeks perhotelan. Kajian ini mendapati bahawa pasaran saham Singapura dan indeks hartanah menunjukkan hubungan kointegrasi dengan perubahan kadar bunga jangka pendek dan jangka panjang juga dengan pengeluaran industri, paras harga, kadar tukaran mata wang dan penawaran wang. Implikasi kajian dan cadangan kajian untuk masa depan dikemukakan.
Jurnal Pengurusan 24
An efﬁcient capital market is one in which security prices adjust rapidly to the arrival of new information and, therefore, the current prices of securities reﬂect all information about the security. What this means, in simple terms, is that no investor should be able to employ readily available information in order to predict stock price movements quickly enough so as to make a proﬁt through trading shares.
Championed by Fama (1970), the efﬁcient market hypothesis (EMH), in particular semi-strong form efﬁciency, which states that stock prices must contain all relevant information including publicly available information, has important implications for policy-makers and the stock-broking industry alike.
Policy makers, for example, should feel free to conduct national macroeconomic policies without the fear of inﬂuencing capital formation and the stock trade process. Moreover, economic theory suggests that stock prices should reﬂect expectations about future corporate performance, and corporate proﬁts generally reﬂect the level of economic activities. If stock prices accurately reﬂect the underlying fundamentals, then the stock prices should be employed as leading indicators of future economic activities, and not the other way around. Therefore, the causal relations and dynamic interactions among macroeconomic variables and stock prices are important in the formulation of the nation’s macroeconomic policy.
As for the effect of macroeconomic variables such as money supply and interest rate on stock prices, the efﬁcient market hypothesis suggests that competition among the proﬁt-maximizing investors in an efﬁcient market will ensure that all the relevant information currently known about changes in macroeconomic variables are fully reﬂected in current stock prices, so that investors will not be able to earn abnormal...
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