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Economic Factors, Crude Oil Prices and Equity Markets: Evidence from CEEC-3 Economies

Year 2013, Volume: 1 Issue: 2, 31 - 50, 04.06.2014

Abstract

This paper investigates the bi-directional long run relationship between macroeconomic factors, oil and stock prices of three transition economies of Central and Eastern European Countries (CEEC-3) namely Czech Republic, Hungary and Poland.Using Toda-Yamamoto estimation procedure with generalized impulse response analysis, it is found in thisstudy that stock market index of each of these countries are not affected by any of these economic factors except for the industrial production in Poland. In Czech Republic and Poland,there is granger causality running from industrial production to inflation. In addition, oil prices granger causes inflation in Czech Republic implying the indicator of inflation in Czech Republic. In Czech Republic and Poland, inflation and industrial production causes interest rates. However, this causality is bidirectional in Poland rather than unidirectional in Czech Republic. It is also found that there is unidirectional causality running from inflation, interest rates and stock market returns to industrial production in Hungary. These findings may have important implications for decision-making by investors and national policymakers.

References

  • Balvers, R.J., Cosimano, T.F. and McDonald, B. (1990). Predicting Stock Returns in an Efficient Market. Journal of Finance, 45(4), pp.1109–1128.
  • Bodie, Z. (1976). Common Stocks as a Hedge Against Inflation, Journal of Finance, 3, pp.459–470.
  • Büttner, D. and Hayo, B. (2009). News and Correlations of CEEC-3 Financial MarketsDiscussion Paper Series in Economics by the Universities of Aachen•Gießen, Göttingen.
  • Canova, F. and De Nicol´o, G. (1995). Stock Returns and Real Activity: A Structural Approach, European Economic Review, 39, pp.981–1015.
  • Chen, N.F., Roll, R. and Ross, S. (1986). Economic Forces and the Stock Market.Journal of Business, 59, pp.383–403.
  • Fama, E.F. and Schwert, G.W. (1977). Asset Returns and Inflation, Journal of Financial Economics, 5, pp.115–146.
  • Fama, E.F. (1981). Stock Returns, Real Activity, Inflation and Money. American Economic Review, 71, pp. 545–565.
  • Ferderer, J.P. (1996). Oil Price Volatility and the Macroeconomy, Journal of Macroeconomics, 18(1), pp.1-26.
  • Fifield, S.G.M., Power, D.M. and Sinclair, CD. (2002).Macroeconomic Factors and Share Returns: Analysis Using Emerging Market Data, International Journal of Finance and Economics, 7, pp. 51-62.
  • Harvey, C.R. (1995). Predictable Risk and Returns in Emerging Markets, Review of Financial Studies, 8, pp.773– 816.
  • Hammoudeh, S. and Elesia, E. (2004). Dynamic Relationships Among GCC Stock Markets and NYMEX Oil Futures. Contemporary Economic Policy, 22(2), pp.250-269.
  • Hanousek, J. and Filer, R.K. (2000). The Relationship between Economic Factors and Equity Markets in Central Europe, Economics of Transition, 8(3), pp.623–638.
  • Kwon, C.S., Shin T.S. and Bacon, F.W. (1997). The Effect of Macroeconomic Variables on Stock Market Returns in Developing Markets, Multinational Business Review, 5(2), pp. 63-70.
  • Marathe, A. and Shawky, H. (1994). Predictability of Stock Returns and Real Output, Quarterly Review of Economics and Finance, 34, pp.317–331.
  • Papapetrou, E. (2001). Oil Price Shocks, Stock Market, Economic Activity, and Employment in Greece, Energy Economics, 23, pp.511-532.
  • Park, S. (1997). Rationality of Negative Stock-Price Responses to Strong Economic Activity, Financial Analysts Journal,53, pp. 52–56.
  • Pesaran, M.H., Shin, Y. and Smith, R.J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16, pp.289-326.
  • Rockinger M. and Urga G. (2000). The Evolution of Stock Markets in Transition Economies, Journal of Comparative Economics, 28, pp.456–472.
  • Rotemberg, J.J. and Woodford, M. (1996). Imperfect Competition and the Effects of Energy Price Increases on Economic Activity, Journal of Money, Credit, and Banking, 28(4), pp.550-577.
  • Sari, R. and Soytaş, U. (2005). Inflation, Stock Returns, and Real Activity: Evidence from a High Inflation Country, The Empirical Economics Letters, 4, pp.181-192.
  • Toda, H.Y. and Yamamoto, T. (1995). Statistical Inference in Vector Auto Regressions with Possibly Integrated Process, Journal of Econometrics, 66, pp.225-250.
  • Tsouma, E. (2009). Stock Returns and Economic Activity In Mature and Emerging Markets, The Quarterly Review of Economics and Finance, 49, pp. 668–685.
  • Wongbangpo P. and Sharma, S.C. (2002). Stock Market and Macroeconomic Fundamental Dynamic Interactions: ASEAN-5 Countries, Journal of Asian Economics, 13, pp. 27-51.
Year 2013, Volume: 1 Issue: 2, 31 - 50, 04.06.2014

Abstract

References

  • Balvers, R.J., Cosimano, T.F. and McDonald, B. (1990). Predicting Stock Returns in an Efficient Market. Journal of Finance, 45(4), pp.1109–1128.
  • Bodie, Z. (1976). Common Stocks as a Hedge Against Inflation, Journal of Finance, 3, pp.459–470.
  • Büttner, D. and Hayo, B. (2009). News and Correlations of CEEC-3 Financial MarketsDiscussion Paper Series in Economics by the Universities of Aachen•Gießen, Göttingen.
  • Canova, F. and De Nicol´o, G. (1995). Stock Returns and Real Activity: A Structural Approach, European Economic Review, 39, pp.981–1015.
  • Chen, N.F., Roll, R. and Ross, S. (1986). Economic Forces and the Stock Market.Journal of Business, 59, pp.383–403.
  • Fama, E.F. and Schwert, G.W. (1977). Asset Returns and Inflation, Journal of Financial Economics, 5, pp.115–146.
  • Fama, E.F. (1981). Stock Returns, Real Activity, Inflation and Money. American Economic Review, 71, pp. 545–565.
  • Ferderer, J.P. (1996). Oil Price Volatility and the Macroeconomy, Journal of Macroeconomics, 18(1), pp.1-26.
  • Fifield, S.G.M., Power, D.M. and Sinclair, CD. (2002).Macroeconomic Factors and Share Returns: Analysis Using Emerging Market Data, International Journal of Finance and Economics, 7, pp. 51-62.
  • Harvey, C.R. (1995). Predictable Risk and Returns in Emerging Markets, Review of Financial Studies, 8, pp.773– 816.
  • Hammoudeh, S. and Elesia, E. (2004). Dynamic Relationships Among GCC Stock Markets and NYMEX Oil Futures. Contemporary Economic Policy, 22(2), pp.250-269.
  • Hanousek, J. and Filer, R.K. (2000). The Relationship between Economic Factors and Equity Markets in Central Europe, Economics of Transition, 8(3), pp.623–638.
  • Kwon, C.S., Shin T.S. and Bacon, F.W. (1997). The Effect of Macroeconomic Variables on Stock Market Returns in Developing Markets, Multinational Business Review, 5(2), pp. 63-70.
  • Marathe, A. and Shawky, H. (1994). Predictability of Stock Returns and Real Output, Quarterly Review of Economics and Finance, 34, pp.317–331.
  • Papapetrou, E. (2001). Oil Price Shocks, Stock Market, Economic Activity, and Employment in Greece, Energy Economics, 23, pp.511-532.
  • Park, S. (1997). Rationality of Negative Stock-Price Responses to Strong Economic Activity, Financial Analysts Journal,53, pp. 52–56.
  • Pesaran, M.H., Shin, Y. and Smith, R.J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16, pp.289-326.
  • Rockinger M. and Urga G. (2000). The Evolution of Stock Markets in Transition Economies, Journal of Comparative Economics, 28, pp.456–472.
  • Rotemberg, J.J. and Woodford, M. (1996). Imperfect Competition and the Effects of Energy Price Increases on Economic Activity, Journal of Money, Credit, and Banking, 28(4), pp.550-577.
  • Sari, R. and Soytaş, U. (2005). Inflation, Stock Returns, and Real Activity: Evidence from a High Inflation Country, The Empirical Economics Letters, 4, pp.181-192.
  • Toda, H.Y. and Yamamoto, T. (1995). Statistical Inference in Vector Auto Regressions with Possibly Integrated Process, Journal of Econometrics, 66, pp.225-250.
  • Tsouma, E. (2009). Stock Returns and Economic Activity In Mature and Emerging Markets, The Quarterly Review of Economics and Finance, 49, pp. 668–685.
  • Wongbangpo P. and Sharma, S.C. (2002). Stock Market and Macroeconomic Fundamental Dynamic Interactions: ASEAN-5 Countries, Journal of Asian Economics, 13, pp. 27-51.
There are 23 citations in total.

Details

Primary Language English
Journal Section Makale
Authors

Serkan Şahin

Publication Date June 4, 2014
Submission Date October 1, 2013
Published in Issue Year 2013 Volume: 1 Issue: 2

Cite

APA Şahin, S. (2014). Economic Factors, Crude Oil Prices and Equity Markets: Evidence from CEEC-3 Economies. İşletme Bilimi Dergisi, 1(2), 31-50.