Do macro-economic variables explain stock-market returns? Evidence using a semi-parametric approach

Sagarika Mishra and Harminder Singh
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Harminder Singh: School of Accounting, Economics & Finance, Deakin University

Journal of Asset Management, 2012, vol. 13, issue 2, No 4, 115-127

Abstract: Abstract In this article we test whether the stock market in India is driven by macro-economic fundamentals. We use a non-parametric approach to determine whether any variables are nonlinearly related with stock returns and the variability of stock returns by taking monthly observations from 1998 to 2008. We consider exchange rate, interest rate, industrial production, inflation and foreign institutional investments as macro-economic factors. Further, we employ a semi-parametric approach to see whether any of the macro-variables have a significant nonlinear impact on the stock return and on the variability of stock return. Our results suggest that of the Ordinary Least Square and semi-parametric approaches, the semi-parametric approach better explains the stock returns and volatility.

Keywords: semi-parametric model; Indian stock return; macro-economic variables (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1057/jam.2011.11

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