Open AccessPredictive Power of Output Growth, Inflation, and Interest Rate on Stock Return and Volatility: A Comparison
Author(s) -
Poon Wai Ching,
Gee Kok Tong
Publication year - 2010
Publication title -
international journal of management studies/international journal of management studies
Language(s) - English
Resource type - Journals
eISSN - 2232-1608
pISSN - 2180-2467
DOI - 10.32890/ijms.17.2010.10188
Subject(s) - economics , volatility (finance) , stock (firearms) , monetary economics , stock market , emerging markets , interest rate , predictive power , autoregressive conditional heteroskedasticity , econometrics , financial economics , macroeconomics , mechanical engineering , paleontology , philosophy , epistemology , engineering , horse , biology
Using monthly data from seven mature and emerging markets and a battery of GARCH and EGARCH models, the study of Davis and Kutan (2003) on inflation and output on stock returns and volatility is extended by including interest rate to compare the effect between three mature markets (US, Japan, and Singapore) and four emerging markets who experienced a crisis before (Malaysia, India, Korea, and Philippines). It is found that economic volatility, as measured by movement in inflation, output growth, and interest rate, have a weak predictor power for stock market volatility and returns. In line with the evidence reported in Davis and Kutan (2003), the findings suggest that there is no support for the Fisher effect in stock returns among the seven mature and emerging markets. Keywords: Predictive power; output; inflation; interest rate; stock return volatility.