Understanding the relationship between macroeconomic variables and the stock market is important because macroeconomic variables have a systematic effect on stock market returns.This study uses monthly data from India...Understanding the relationship between macroeconomic variables and the stock market is important because macroeconomic variables have a systematic effect on stock market returns.This study uses monthly data from India for the period from April 1994 to July 2018 to examine the long-run relationship between the stock market and macroeconomic variables.The empirical findings suggest that standard cointegration tests fail to identify any relationship among these variables.However,a transformation that extracts the actual functional relationship between these variables using the alternating conditional expectations algorithm of(J Am Stat Assoc 80:580–598,1985)identifies strong evidence of cointegration and indicates nonlinearity in the long-run relationship.Further,the continuous partial wavelet coherency model identifies strong coherency at a lower frequency for the transformed variables,establishing the fact that the long-run relationship between stock prices and macroeconomic variables in India is nonlinear and time-varying.This evidence has far-reaching implications for understanding the dynamic relationships between the stock market and macroeconomic variables.展开更多
文摘Understanding the relationship between macroeconomic variables and the stock market is important because macroeconomic variables have a systematic effect on stock market returns.This study uses monthly data from India for the period from April 1994 to July 2018 to examine the long-run relationship between the stock market and macroeconomic variables.The empirical findings suggest that standard cointegration tests fail to identify any relationship among these variables.However,a transformation that extracts the actual functional relationship between these variables using the alternating conditional expectations algorithm of(J Am Stat Assoc 80:580–598,1985)identifies strong evidence of cointegration and indicates nonlinearity in the long-run relationship.Further,the continuous partial wavelet coherency model identifies strong coherency at a lower frequency for the transformed variables,establishing the fact that the long-run relationship between stock prices and macroeconomic variables in India is nonlinear and time-varying.This evidence has far-reaching implications for understanding the dynamic relationships between the stock market and macroeconomic variables.
