Do Macroeconomic Variables Have Any Impact On Stock Market?
An Application of ARDL Approach to the Indonesian Market
Abstract
This paper makes an attempt to examine the impact of selected macroeconomic variables on the stock market. Indonesia has taken as a case study. This study is a fresh attempt to investigate the relationship among the variables by applying ‘Auto – Regressive Distributive Lag’ model which has taken care of a major limitation of the conventional cointegrating tests in that they suffer from pre-test biases between the variables. The data uses in this study are monthly data of major macroeconomics variables which are inflation rate, interest rate, exchange rate and also the data of stock index. This study provide evidence that by applying ARDL techniques, there is a significance relationship among variables and macroeconomic variables seem to significantly impact the stock market of Indonesia. Inflation rate has found out to be strongest impact on stock market compared to other macroeconomic variables. Controlling these macroeconomic variables can provide stock market stability which is essential for the economy of Indonesia. This has an important policy implication for the national policy makers, researchers, corporate managers and regulators.
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