Macroeconomic Factors of Emerging Stock Market: The Evidence from Thailand

Abstract

This paper aims to examine the importance of macroeconomic factors to determine the performance in stock market. The regression analysis is used to examine this relationship. The result shows macroeconomic variables can explain stock return significantly after adjusting for lags of data availability. Moreover, the lead-lag relationship is examined by Vector Autoregression model and Granger causality test. They reveal that macroeconomic variables are less important to predict future stock return whereas stock return can be used to predict macroeconomic variables more. In the other word, stock return is good candidate as a leading economic indicator. Finally, the variance decomposition technique reveals that interest rate is the most important macroeconomic variable to explain the variance in stock return. However, it is clearly noticed that all macroeconomic variables can explain only a little of variance in stock return.

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