The causal effects of leading macroeconomic indicators on stock return: evidence from 13 selected Asia Pacific countries Online publication date: Thu, 27-May-2021
by Shu-Ern Lim; Pei-Tha Gan; Fatimah Salwa Binti Abd. Hadi; Norasibah Binti Abdul Jalil
International Journal of Business and Globalisation (IJBG), Vol. 28, No. 1/2, 2021
Abstract: The motivation for this study stems from the fact that the leading macroeconomic indicators, namely output, inflation, interest rate and exchange rate can cause a change in the stock return. This study aims to examine the causal relationship between stock return and the leading macroeconomic indicators. This study uses the idea of market informational inefficiency via the context of semi-strong form of the efficient market hypothesis based on 13 selected Asia Pacific countries. To avoid spurious regressions, this study employs the augmented Dickey-Fuller and the Phillips-Perron unit root tests to determine the stationarity of the variables and the random walk effect. By using the Toda-Yamamoto Granger causality test, the finding suggests that the causal effect of the leading macroeconomic indicators on the stock return may shed light on decisive decision-making about risk minimisation and returns maximisation of fund managers, investors, and investment agencies.
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