Globalization⇒ Economic and financial globalization⇒ Economic conditions in one country⇒ stock market

 

 

1. Becker, K.G., Finnerty, J.E. and Kopecky, K.J., 1995. Domestic macroeconomic news and foreign interest rates. Journal of International Money and Finance, 14(6), pp.763-783.

Abstract:

This study examines the impact of US and UK news on futures prices of US, UK, German, and Japanese government bonds. We find that certain US information has a significant influence on German, Japanese, and British interest rates, while UK information has almost no effect on foreign rates. Second, we examine the foreign term structure to investigate whether the importance of US information arises because it either signals common world-wide shocks or induces an anticipated exchange rate stabilization by foreign central banks. The evidence is mixed, except for the US CPI surprise which appears to provide information about a common world-wide shock. (G15).

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3. Chen, N.F., Roll, R. and Ross, S.A., 1986. Economic forces and the stock market. Journal of business, pp.383-403.

Abstract from this reference:

This paper tests whether innovations in macroeconomic variables are risks that are rewarded in the stock market. Financial theory suggests that the following macroeconomic variables should systematically affect stock market returns: the spread between long and short interest rates, expected and unexpected inflation, industrial production, and the spread between high- and low-grade bonds. We find that these sources of risk are significantly priced. Furthermore, neither the market portfolio nor aggregate consumption are priced separately. We also find that oil price risk is not separately rewarded in the stock market.

4. Narayan, S. and Narayan, P.K., 2012. Do US macroeconomic conditions affect Asian stock markets?. Journal of Asian Economics, 23(6), pp.669-679.

Abstract from this reference:

The aim of this paper is to examine the impact of US macroeconomic conditions—namely, exchange rate and short-term interest rate—on the stock markets of seven Asian countries (China, India, the Philippines, Malaysia, Singapore, Thailand, and South Korea). We use daily data for the period 2000–2010. We divide the sample into a pre-crisis period (pre-August 2007) and a crisis period (post-August 2007). We find that, in the short-run, the interest rate has a statistically insignificant effect on returns for all countries, except for the Philippines in the crisis period. On the other hand, except for China, regardless of the crisis, depreciation has a statistically significant and negative effect on returns. When the long-run relationship among the variables is considered, for five of the seven countries (India, Malaysia, the Philippines, Singapore, and Thailand), while there is cointegration in the pre-crisis period, in the crisis period there is no such relationship, implying that the financial crisis has actually weakened the link between stock prices and economic fundamentals.

Highlights:

► We study the impact of the US macroeconomic conditions on the stock markets of Asian countries. ► We find that in the short-run interest rate has a statistically insignificant effect on returns. ► For China, regardless of the crisis, depreciation has a negative effect on returns. ► Financial crisis has actually weakened the link between stock prices and economic fundamentals.