Title: The causal effects of leading macroeconomic indicators on stock return: evidence from 13 selected Asia Pacific countries

Authors: Shu-Ern Lim; Pei-Tha Gan; Fatimah Salwa Binti Abd. Hadi; Norasibah Binti Abdul Jalil

Addresses: Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris (Sultan Idris Education University), 35900 Tanjong Malim, Perak, Malaysia ' Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris (Sultan Idris Education University), 35900 Tanjong Malim, Perak, Malaysia ' Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris (Sultan Idris Education University), 35900 Tanjong Malim, Perak, Malaysia ' Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris (Sultan Idris Education University), 35900 Tanjong Malim, Perak, Malaysia

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.

Keywords: leading macroeconomic indicators; causal relationship; market informational efficiency; stock return; random walk.

DOI: 10.1504/IJBG.2021.115297

International Journal of Business and Globalisation, 2021 Vol.28 No.1/2, pp.77 - 96

Received: 28 Dec 2018
Accepted: 03 May 2019
Published online: 27 May 2021 *

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