Macroeconomic Factors and Bank and Finance Stock Prices: The Australian Experience

Satya Paul and Girijasankar Mallik
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Girijasankar Mallik: University of Western Sydney, Sydney, NSW

Economic Analysis and Policy (EAP), 2003, vol. 33, issue 1, pages 23-30

Abstract: This paper investigates the relationship between macroeconomic factors and stock prices in the banking and finance sector in Australia using quarterly data for the period 1980Q1-99Q1. The research methodology consists of conducting cointegration tests and estimating an error correction model for examining the long run relationship between bank and finance stock prices and macroeconomic variables such as inflation, interest rate and real GDP growth. The study reveals that the bank and finance stock prices are cointegrated with all three macroeconomic variables. The interest rate has a negative effect, whereas GDP growth has a positive effect on stock prices. Inflation has no significant effect on stock prices, which supports Fama's proxy hypothesis.

Keywords: Bank; Banking; Finance; Macroeconomics; Stock Price; Stocks (search for similar items in EconPapers)
JEL-codes: E44 G12 G21 (search for similar items in EconPapers)
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