Do Macroeconomic Variables Have Any Impact On Stock Market?

An Application of ARDL Approach to the Indonesian Market

  • Irfan Afifah Mohd Zaki International Centre for Education in Islamic Finance, Kuala Lumpur
  • Bushra Mohd Zaki Faculty of Business Management, Universiti Teknologi MARA Cawangan Melaka, Kampus Alor Gajah, Melaka
  • Roszi Naszariah Nasni Naseri Faculty of Business Management, Universiti Teknologi MARA Cawangan Melaka, Kampus Alor Gajah, Melaka
  • Norfaezah Mohd Shahren Faculty of Business Management, Universiti Teknologi MARA Cawangan Melaka, Kampus Alor Gajah, Melaka
  • Nik Rozila Nik Mohd Masdek Faculty of Business Management, Universiti Teknologi MARA Cawangan Melaka, Kampus Alor Gajah, Melaka
Keywords: Macroeconomics variables, Stock Market, ARDL Approach, 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.

Published
2018-12-01