Testing the arbitrage pricing theory in an emerging stock market: the case of Mauritius

Sunil K. Bundoo

Afro-Asian Journal of Finance and Accounting, 2009, vol. 1, issue 4, 322-332

Abstract: This study focuses on the arbitrage pricing theory (APT) framework to analyse several macroeconomic factors likely to influence the market return (SEMDEX return) on the Stock Exchange of Mauritius (SEM). Seven variables are considered: the consumer price index, oil price, exchange rate, tourist arrival rate, electricity consumption, Lombard rate and aggregate money supply. The sample data are monthly observations from January 2002 to December 2006. Four variables that are statistically significant at the 10% level or better in explaining variation in the equity premium on the SEM are: the level of the price index, the oil price (given that Mauritius is heavily dependent on oil imports), the exchange rate and the level of economic activity as proxied by electricity consumption. The most important variable is the exchange rate. The reliability of the model is tested and found to be adequate.

Keywords: stock markets; emerging markets; arbitrage pricing theory; APT; Mauritius; consumer price index; oil price; exchange rate; tourist arrival rate; electricity consumption; Lombard rate; aggregate money supply. (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ids:afasfa:v:1:y:2009:i:4:p:322-332

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