The purpose of this study is to analyse the changes in macroeconomic variables and evaluate the impact on a company’s stock prices, by examining the impact of changes macroeconomic variables, determining which macro-economic variables that have the least and most impact on stock prices and also suggest ways in which the impact on the macroeconomic variables on stock prices can be hedged against using agricultural futures, metal futures or a risk-free asset.
The study will use five econometric models to test this impact, these include the Granger Causality test, Johansen Co-Integration test, Vector Error Model, Walt Test statistic, Multiple Regression Model. A review of a number of academic literature by notable analysis for both developed and developing markets will be provided. The FTSE share price index will be used in the study to represent the developed markets and the JSE share price index will be used in the study to represent the developing markets.
Table of Contents
1.0 BACKGROUND AND INTRODUCTION
1.1 AIMS AND OBJECTIVES
1.2 SCOPE AND METHODOLOGY
1.3 FINDINGS
2.0 INTRODUCTION
2.1 MACROECONOMIC VARIABLES AND STOCK PRICES
2.2 MACROECONOMIC VARIABLES AND STOCK PRICES IN DEVELOPING MARKETS
2.3 MACROECONOMIC VARIABLES AND STOCK PRICES IN DEVELOPED MARKETS
2.4 HEDGING STRATEGIES FOR MOVEMENTS IN MACROECONOMIC VARIABLES
3.0 INTRODUCTION
3.1 STRUCTURE
3.2 DATA
3.3 MAIN HYPOTHESIS
3.4 STATISTICAL TESTS
3.5 LIMITATIONS
4.0 INTRODUCTION
4.1 IMPACT OF CHANGES IN MACROECONOMICS IN DEVELOPED MARKET
4.11 NORMALITY TESTS
4.12 CORRELATION
4.13 UNIT ROOT TEST
4.14 GRANGER CASUALTY
4.15 JOHANSEN CO-INTEGRATION TEST
4.16 VECTOR ERROR CORRECTION MODEL
4.17 WALD TEST STATISTIC-TESTING SHORT RUN
4.18 MULTIPLE REGRESSION MODEL
4.19 IMPACT OF CHANGES IN MACROECONOMIC VARIABLES IN DEVELOPING MARKETS
4.20 NORMALITY TEST
4.21 CORRELATION
4.22 UNIT ROOT
4.23 GRANGER CASUALTY TEST
4.24 JOHANSEN CO-INTEGRATION TEST
4.25 VECTOR ERROR CORRECTION MODEL
4.26 WALD TEST FOR SHOT RUN EFFECT
4.27 MULTIPLE REGRESSION MODEL
5.0 INTRODUCTION
5.1 DIVERSIFICATION WITH A RISK FREE ASSET
5.2 DIVERSIFICATION USING GOLD FUTURES
5.3 DIVERSIFICATION WITH AGRICULTURE FUTURES (LONDON WHEAT FUTURES)
6.0 CONCLUSION
6.1 AIM OF THE STUDY AND OBJECTIVES
6.2 FINDINGS
6.3 RECOMMENDATIONS
Research Objectives and Themes
This study aims to analyze the relationship between macroeconomic variables and stock prices in both developed (FTSE) and developing (JSE) markets, identify which factors have the most significant impact, and explore hedging strategies using alternative financial instruments.
- Impact of Interest Rates, Inflation, and GDP on stock market volatility.
- Comparative analysis of developed vs. developing market sensitivity to economic indicators.
- Application of econometric modeling (Granger Causality, Johansen Co-Integration, VECM).
- Development of hedging strategies using risk-free assets, gold, and agricultural futures.
Excerpt from the Book
1.0 BACKGROUND AND INTRODUCTION
The UK has experienced a lot of instability in different macroeconomic variables since the result of the referendum to exit the European Union was announced on the 24th of June 2016. The Brexit decision also led to high volatility in stock prices (Ramiah, Pham and Moosa, 2017). Stock markets globally have of late been more connected than ever before this has often led to the effects of any changes being felt right across all the stock markets (Forbes and Rigobon, 2002).
According, to Rodionova, Cox and Chu (2017) the Pound Sterling depreciated against the United States Dollar by about 14% as a result of the decision to exit the EU. Also to be affected by this result was the UK FDIs which fell by about 0.9%, inflation for the country rose from 0.3% to 1.2% during the last quarter of 2016 and the official bank rate plunged by 50% to 0.25%.
A number of notable analysts have provided literature on stock price movements and how their determined. The main proponent of stock price movement/Efficient Market Hypothesis was Fama (1970) who suggested that any stock prices will change on the account of news which is unpredictable and any expected news/information is always included in the asset prices. Sharpe (1964), Lintner (1965) and Mossin (1966) invented one of the first viable asset pricing theories which used stock market index to explain an investors returns, known as CAPM (Capital Asset Pricing Model).
Summary of Chapters
1.0 BACKGROUND AND INTRODUCTION: Provides context on market instability following the Brexit referendum and reviews foundational theories on asset pricing and stock market movements.
2.0 INTRODUCTION: Outlines the theoretical necessity of the study, assessing how various economic aggregates influence business success and investor returns.
3.0 INTRODUCTION: Defines the quantitative research structure, data sources (Bank of England, JSE, etc.), and the suite of statistical models employed for empirical testing.
4.0 INTRODUCTION: Describes the segmented approach for analyzing developed and developing markets, setting the stage for empirical analysis and hedging recommendations.
5.0 INTRODUCTION: Discusses practical hedging frameworks by integrating risk-free assets and commodities into standard market portfolios to mitigate macroeconomic risk.
6.0 CONCLUSION: Synthesizes empirical findings, confirming the significant impact of interest rates and inflation on market volatility and suggesting effective diversification strategies.
Keywords
Macroeconomic variables, Stock prices, FTSE, JSE, Econometric models, Granger Causality, Johansen Co-Integration, VECM, Hedging, Financial markets, Volatility, Interest rates, Inflation, Currency exchange, Portfolio diversification.
Frequently Asked Questions
What is the core purpose of this study?
The study aims to analyze how macroeconomic variables influence stock price movements and to determine effective methods for hedging against these impacts using various financial assets.
Which markets are compared in this research?
The research conducts a comparative study between the UK's developed market (represented by the FTSE index) and South Africa's developing market (represented by the JSE index).
What is the primary research question?
The work investigates the extent to which economic factors like inflation and interest rates affect stock indices and whether investors can mitigate this risk through alternative investment hedging.
What econometric methods were utilized?
The researcher employed five specific models, including the Granger Causality test, Johansen Co-Integration test, Vector Error Correction Model (VECM), Wald Test, and the Multiple Regression Model.
What does the empirical analysis cover?
The analysis treats variables such as CPI (inflation), currency exchange rates, interest rates, and unemployment data, applying them to the FTSE and JSE indices for the period 2010–2017.
Which keywords classify this research?
The primary keywords include macroeconomic variables, stock prices, FTSE, JSE, econometric modeling, market hedging, and portfolio diversification.
How does the study define interest rate impact?
The study finds that interest rates generally have a negative impact on stock prices, acting as a significant factor in both developed and emerging market indices.
What is the conclusion regarding hedging efficiency?
The findings suggest that while diversification through risk-free assets is effective in reducing portfolio volatility, returns often decrease as a trade-off for this added stability.
- Arbeit zitieren
- Kudzanai Chakona (Autor:in), 2017, Changes in Macroeconomic Variables and Their Impact on Stock Price Indices. A Case Study of the Financial Times Stock Exchange (FTSE) and Johannesburg Stock Exchange (JSE) Indices, München, GRIN Verlag, https://www.grin.com/document/1291753
