Do Macro-Economic Variables Explain Stock-Market Returns? Evidence Using a Semi-Parametric Approach

Journal of Asset Management, Vol. 28, pp. 1-13, April 2011

13 Pages Posted: 4 Oct 2011

See all articles by Sagarika Mishra

Sagarika Mishra

Deakin University

Harminder Singh

Deakin University - School of Accounting, Economics and Finance

Date Written: October 3, 2011

Abstract

In this paper we test whether the stock-market in India is driven by macro-economic fundamentals. We employ a non-parametric approach to determine whether any variables are non-linearly 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 non-linear impact on the stock return and on the variability of stock return. Our results suggest that of the Ordinary Least Square (OLS) 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

JEL Classification: C14, E44

Suggested Citation

Mishra, Sagarika and Singh, Harminder, Do Macro-Economic Variables Explain Stock-Market Returns? Evidence Using a Semi-Parametric Approach (October 3, 2011). Journal of Asset Management, Vol. 28, pp. 1-13, April 2011 , Available at SSRN: https://ssrn.com/abstract=1937914

Sagarika Mishra

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Harminder Singh (Contact Author)

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

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