Macroeconomic Factors and UK Stock Market: Evidence through the Non-Linear ARDL model

Malika Neifar

MPRA Paper from University Library of Munich, Germany

Abstract: In this study, we examined the impact of some relevant UK macroeconomic factors, such as consumer price, interest rate, and exchange rates on UK stock price fluctuation by using the monthly data from 2008m01 to 2018m04. A general form of asymmetric Non-linear Auto-Regressive Distributed Lag (NARDL) model is adopted to examine the Generalized Fisher hypothesis (GFH). The Fpss bound test of (Pesaran, Shin, & Smith, 2001) for no co-integration shows the evidence of co-integration between the underlying variables. The estimated NARDL model provides strong evidence of stable long-run relationship between stock prices and deflation while the relation with inflation is not present. Both interest rate and exchange rate as independent regressors show negative significant long-run relationships with the stock market price. However, it is only the interest rate which has a significant effect for the stock price short-run adjustment to the new long-run stable equilibrium.

Keywords: UK Stock Market; Macroeconomic Factors; Generalized Fisher hypothesis (GFH); NARDL model. (search for similar items in EconPapers)
JEL-codes: C22 G14 G15 (search for similar items in EconPapers)
Date: 2023-02-12
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