Asymmetric relationship between stock market returns and macroeconomic variables. (2016)

• Record Type: Journal Article
• Authors: Devi, N. Chitra; Chandramohan, S.
• Is Part Of: International journal of business forecasting and marketing intelligence. Volume 2:Number 2(2016)
• Page Start: 79
• Page End: 94
• Publication Date: 2016
• Subjects: macroeconomic variables -- stock returns -- GARCH models -- asymmetric relationships -- UK -- United Kingdom -- ordinary least squares -- OLS; Business forecasting -- Periodicals; Marketing research -- Periodicals; 658.40355
• Languages: English
• ISSNs: 1744-6635

Abstract

The aim of the study is to examine the relationship between stock market returns and key macroeconomic variables in the UK. The method of Ordinary Least Square has been applied to find out the nexus between stock market returns and macroeconomic variables in the UK. The study reveals that the application of ordinary least square has not been BLUE due to the existence of conditional heteroskedasticity which is confirmed by the ARCH-LM test. Therefore, symmetric and asymmetric GARCH models have been employed to find out the nexus between macroeconomic variables with the stock market returns. The performance of symmetric and asymmetric models are compared using the model selection criterion namely Akaike information criterion which suggests that the EGARCH model is the best model in the UK. The result of the EGARCH model reveals that the impact of news on stock market returns is asymmetric in the UK stock market.