Statistically Significant Relationships between Returns on FTSE 100, S&P 500 Market Indexes and Macroeconomic Variables with Emphasis on Unconventional Monetary Policy

Aweda, Nurudeen Olawale and Are, Stephen Olusegun and Akinsanya, Taofik (2014) Statistically Significant Relationships between Returns on FTSE 100, S&P 500 Market Indexes and Macroeconomic Variables with Emphasis on Unconventional Monetary Policy. International Journal of Statistics and Applications, 4 (6). pp. 249-268.

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Abstract

Establishing the nature of relationships between macroeconomic variables and stock market returns are imperative to investors and understanding the stock market dynamics in any country. These relationships have been extensively studied in both emerging and the developed stock markets. By employing vector error correction and cointegration techniques, this current study established the statistically significant long-run and short-run causal relationships between macroeconomic variables and the stock market returns of FTSE100 and S&P500 stock market indexes in the United Kingdom and United States respectively. The macroeconomic variables employed include industrial production index, short-term interest rates, exchange rates, consumer price index and unemployment rates in addition to broad money supply M3 that was included as an exogenous variable. Also global financial crisis was introduced, as a dummy variable to capture structural breaks inherent in the data. Empirical results showed that significant long-run relationship existed between stock market returns and industrial production index, interest rates, and consumer price index in the United Kingdom while stock market returns in the United States was influenced by all variables except industrial production index. Furthermore, results indicated that it takes longer for stock market returns to adjust to its long-run equilibrium in the UK than in the US. In the short-run, industrial production index, short-term interest rates, and unemployment rates have no significant causal link with returns on FTSE100. Similarly, industrial production index and exchange rates have no significant short-run causality with returns on S&P500. Unconventional monetary policies (Quantitative Easing or Large-Scale Assets Purchases) adopted by Federal Reserve have positive impact on the S&P500 stock market returns.

Item Type:	Article
Subjects:	Q Science > Q Science (General) Q Science > QA Mathematics
Divisions:	Faculty of Engineering, Science and Mathematics > School of Mathematics
Depositing User:	Mr Taiwo Egbeyemi
Date Deposited:	09 Jun 2020 16:22
Last Modified:	09 Jun 2020 16:22
URI:	http://eprints.federalpolyilaro.edu.ng/id/eprint/399

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