Macroeconomic determinants of the stock market movements: empirical evidence from the Saudi stock market.

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dc.contributor.author Alshogeathri, Mofleh Ali Mofleh
dc.date.accessioned 2011-08-08T20:13:28Z
dc.date.available 2011-08-08T20:13:28Z
dc.date.issued 2011-08-08
dc.identifier.uri http://hdl.handle.net/2097/11989
dc.description.abstract This dissertation investigates the long run and short run relationships between Saudi stock market returns and eight macroeconomic variables. We investigate the ability of these variables to predict the level and volatility of Saudi stock market returns. A wide range of Vector autoregression (VAR) and generalized autoregressive conditional heteroskedasticity (GARCH) models estimated and interpreted. A Johansen-Juselius cointegration test indicates a positive long run relationship between the Saudi stock price index and the M2 money supply, bank credit, and the price of oil, and a negative long run relationship with the M1 money supply, the short term interest rate, inflation, and the U.S. stock market. An estimated vector error correction model (VECM) suggests significant unidirectional short run causal relationships between Saudi stock market returns and the money supply and inflation. The VECM also finds a significant long run causal relationship among the macroeconomic variables in the system. The estimated speed of adjustment indicates that the Saudi stock market converges to the equilibrium within half a year. Granger causality tests show no causal relationship between Saudi stock market returns and the exchange rate. Impulse response function analysis shows no significant relationship between Saudi stock market returns and the macroeconomic variables. Forecast error variance decompositions suggest that 89% of the variation in Saudi stock market returns is attributable to its own shock, which implies that Saudi stock market returns are largely independent of the macroeconomic variables in the system. Finally, a GARCH-X model indicates a significant relationship between volatility of Saudi stock returns and short run movements of macroeconomic variables. Implications of this study include the following. (i) Prediction of stock market returns becomes more difficult as the volatility of the macroeconomic variables increases in the short run. (ii) Investors should look at the systematic risks revealed by these macroeconomic variables when structuring their portfolios and diversification strategies. (iii) Policymakers should seek to minimize macroeconomic fluctuations considering the effect of macroeconomic variables changes on the stock market when formulating economic policy. en_US
dc.description.sponsorship King Saudi University, Saudi Arabia. en_US
dc.language.iso en_US en_US
dc.publisher Kansas State University en
dc.subject Macroeconomic determinants of the Saudi stock market movements en_US
dc.subject Saudi stock market return and volatility en_US
dc.subject VAR Analysis en_US
dc.subject GARCH model en_US
dc.subject Cointegration en_US
dc.subject Causality en_US
dc.title Macroeconomic determinants of the stock market movements: empirical evidence from the Saudi stock market. en_US
dc.type Dissertation en_US
dc.description.degree Doctor of Philosophy en_US
dc.description.level Doctoral en_US
dc.description.department Department of Economics en_US
dc.description.advisor Lance J. Bachmeier en_US
dc.subject.umi Economics, Finance (0508) en_US
dc.date.published 2011 en_US
dc.date.graduationmonth August en_US

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