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Relationship between Asian Emerging Stock Markets and Economic Fundamentals: A Cointegration and Block Exogeneity Wald Approach

Velip Suraj Pavto and Guntur Anjana Raju

International Journal of Economics & Business Administration (IJEBA), 2020, vol. VIII, issue 3, 280-292

Abstract: Purpose: The stock market performance is the function of the current and future level of economic activity. In view of this, the study examines the short-run and long-run association between Asian emerging stock markets and their economic fundamentals. Design/Methodology/Approach: The sample size of the study consists of nine Asian emerging stock markets namely China, India, Indonesia, South Korea, Malaysia, Pakistan, Philippines, Taiwan and Thailand and their macroeconomic determinants such as Consumer Price Index (CPI), Export, Import, Exchange Rate (Forex), Industrial Production Index (IP), Broad Money Supply (MS) and Short-term Interest Rate (IR). Each stock market is investigated using the Johansen Cointegration test and Vector Error Correction Causality/Block Exogeneity Wald test. The study used monthly data observations from January 2000 to August 2019. Findings: The cointegration result provided incremental information on the long-run relationship between stock prices and macroeconomic variables. However, the causality between stock prices and macroeconomic variables are considerably limited in the short-run. Practical Implications: The insight on the linkages between stock prices and economic fundamentals will provide the opportunity for short-run and long-run investment decisions in the Asian emerging stock markets. Originality/Value: The result of this study would amplify the understanding on the extent of integration between Asian emerging stock markets and macroeconomic variables. This would be a significant incentive to figure out a risk-reward opportunity from these markets.

Keywords: Asian emerging stock markets; macroeconomic variables; cointegration; causality. (search for similar items in EconPapers)
JEL-codes: E44 F36 G15 (search for similar items in EconPapers)
Date: 2020
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