Selected Macroeconomic Variables and Stock Market Movements: Empirical Evidence from Thailand

Contemporary Economics, Vol. 8, No. 2; Pages 154-174, 2014

18 Pages Posted: 7 Jul 2014

See all articles by Joseph Ato Forson

Joseph Ato Forson

University of Education, Winneba

Jakkaphong Janrattanagul

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Date Written: June 30, 2014

Abstract

This paper investigates and analyzes the long-run equilibrium relationship between the Thai stock Exchange Index (SETI) and selected macroeconomic variables using monthly time series data that cover a 20-year period from January 1990 to December 2009. The following macroeconomic variables are included in our analysis: money supply (MS), the consumer price index (CPI), interest rate (IR) and the industrial production index (IP) (as a proxy for GDP). Our findings prove that the SET Index and the selected macroeconomic variables are cointegrated at I (1) and have a significant equilibrium relationship over the long run. Money supply demonstrates a strong positive relationship with the SET Index over the long run, whereas the industrial production index and consumer price index show negative long-run relationships with the SET Index. Furthermore, in non-equilibrium situations, the error correction mechanism suggests that the consumer price index, industrial production index and money supply each contribute in some way to restore equilibrium. In addition, using Toda and Yamamoto’s augmented Granger causality test, we identify a bi-causal relationship between industrial production and money supply and unilateral causal relationships between CPI and IR, IP and CPI, MS and CPI, and IP and SETI, indicating that all of these variables are sensitive to Thai stock market movements. The policy implications of these findings are also discussed.

Keywords: macroeconomic variables; cointegration; Thai Stock Exchange index (SETI); T-Y augmented Granger-causality

JEL Classification: CO1, C12, C22, C58

Suggested Citation

Forson, Joseph Ato and Janrattanagul, Jakkaphong, Selected Macroeconomic Variables and Stock Market Movements: Empirical Evidence from Thailand (June 30, 2014). Contemporary Economics, Vol. 8, No. 2; Pages 154-174, 2014, Available at SSRN: https://ssrn.com/abstract=2462983

Joseph Ato Forson (Contact Author)

University of Education, Winneba ( email )

P.O. Box 25
Winneba, Central Region +233
Ghana

HOME PAGE: http://www.uew.edu.gh

Jakkaphong Janrattanagul

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

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