Research Article - Journal of Finance and Marketing (2019) Volume 3, Issue 1
Does it influence? Macro variables on stock returns.
Purpose: This study comprise purpose to investigate relationship between stock returns & macroeconomic indicators of Pakistan. In this research consider macroeconomic variables i.e. Gross Domestic Production (GDP), Foreign Direct Investment (FDI) has been studied with relation to stock returns having influential factor political regime of the country during the period research has been carried out. It has been observed significant impact on stock with variations in macroeconomic variables with the passage of time and also observed how significantly impact of changes in political regime on stock returns.
Methodology/sample: Research would be explanatory in nature. Based on secondary time series data of stock 100 index and selected macro-economic variables yearly data from 2003 to 2017 and political regime as controlling variable has been observed during the period research has conducted. For research data analysis regression equation has developed and test run on Eviews 8.0 simple regression to check overall fitness of model, individual significance of each variable, and auto correlation between predictor variables. As well as satisfying time series data requirement Heteroskedasticity Test: Breusch-Pagan-Godfrey to check variance in each data series, Breusch-Godfrey Serial Correlation LM Test to test serial correlation between variables, unit root test -Augmented Dickey Fuller has been used to check stationary of data.
Findings: Results shows value of R2 is 91% shows goodness of fitness of the model. F-test 39.67% shows overall model is significant. As far as concerned individuality significance GDP & political stability significance but FDI value not showing significance itself. Durbin-Watson value 2.309941 shows auto correlation between GDP & FDI. In Breusch-Godfrey Serial Correlation LM Test: value of P-value chi-square 0.2087, 20.87% which is greater 10% shows auto correlation exists in model. In Heteroskedasticity Test: Breusch-Pagan-Godfrey P-value chi-squares greater than 0.05 its means variance & un equality in data exist. In Unit root test P value of FDI & Political regime is less than 0.05 shows stationary in data series, while GDP is not showing stationary in data series.
Practical Implications: This study endorsed the Arbitrage Pricing Theory (ATP) developed by Ross (1976) is way of linking macroeconomic variables to stock market return, shows how macro variables having impact on stock returns with influence of political regime in a country with every successive time period operating as controlling element in the country having significant impact on economy of the state. This study has empirical evidences carried on other macro variables. For future this study would help to analyze how defined variables impact on stock returns and how much political regime having significant impact on economy would take extension in the theory. Stock returns boost or decline as per political stability of the country which have parallel variant economic indicators.Author(s): Jamal S, Mujtaba M