This study examines the effect of specific macroeconomic factors on the stock prices of selected financial sector companies listed on the Central European Exchanges (Budapest Stock Exchange, Prague Stock Exchange, Bratislava Stock Exchange, or Warsaw Stock Exchange). We investigate the nature of the causal relationships between macroeconomic factors and stock prices. The long‑term causality, tested using the Johansen cointegration test, and the short‑run dynamics between the variables, examined using the VECM model, are explored using quarterly data from the 2005-2014 period. The short‑term causality shows the possibility of time series fluctuations; however a steady state should be achieved in the long‑term. In general, we confirmed that macroeconomic fundamentals had a negative impact on stock prices. The interest rate, which also has a negative impact, is the most prominent predictor of the long‑run developments. We also found very rare examples of macroeconomic variables that explain changes in stock prices within the VECM framework.
If the inline PDF is not rendering correctly, you can download the PDF file here.
Calderón C. and Liu L. (2003) The direction of causality between financial development and economic growth ʽJournal of Development Economicsʼ Elsevier Amsterdam no. 72.
Chen N.F. Roll R. and Ross S.A. (1986) Economic forces and the stock market ʽThe Journal of Businessʼ The University of Chicago Press Chicago no. 59.
Choi J.J. Elyasini E. and Kopecky K.J. (1992) The sensitivity of bank stock returns to market interest and exchange rate risks ʽJournal of Banking and Financeʼ Elsevier Amsterdam no. 16.
Fama E. (1970) Efficient capital markets: A review of theory and empirical work ʽThe Journal of Financeʼ Blackwell Publishing for the American Finance Association Malden no. 25.
Fama E. (1981) Stock returns real activity inflation and money ʽAmerican Economic Reviewʼ American Economic Association Nashville no. 71.
Gajdka J. and Pietraszewski P. (2016) Economic growth and stock prices: Evidence from Central and Eastern European countries ʽComparative Economic Researchʼ De Gruyter Open Warsaw no. 19.
Garcia V .F. and Liu L. (1999) Macroeconomic determinants of stock market development ʽThe Journal of Applied Economicsʼ Elsevier Amsterdam no. 2.
Granger C.W.J. (1969) Investigating causal relations by econometric models and cross‑spectral methods ʽEconometricaʼ The Econometric Society New York no. 37.
Hanousek J. and Filer R.K. (2000) The relationship between economic factors and equity markets in Central Europe ʽEconomics of Transitionʼ Wiley‑Blackwell on behalf of the European Bank for Reconstruction and Development London no. 8.
Horobet A. and Dumitrescu S. (2009) On the causal relationships between monetary financial and real macroeconomic variables? Evidence from Central and Eastern Europe ʽEconomic Computation and Economic Cybernetics Studies and Researchʼ Editura Academia de Studii Economice Bucharest no. 43.
Johansen S. and Juselius K. (1990) Maximum likelihood estimation and inference on cointegration- with applications to the demand for money ʽOxford Bulletin of Economics and Statisticsʼ Wiley‑Blackwell on behalf of Blackwell Publishing Ltd and University of Oxford Department of Economics Oxford no. 52.
Kulhánek L. (2012) The relationship between stock markets and gross domestic product in the Central and Eastern Europe [in:] Jana Kotlebová (eds) The 7th International Conference on Currency Banking and International Finance‑How Does Central and Eastern Europe Cope up with the Global Financial Crisis University of Economics in Bratislava Bratislava.
Stoica O. Nucu A.E. and Diaconasu D.E. (2014) Interest rates and stock prices: Evidence from Central and Eastern European markets ʽEmerging Markets Finance and Tradeʼ Routledge Abingdon no. 50.
Ross S.A. (1976) The arbitrage theory of capital asset pricing ʽJournal of Economic Theoryʼ Elsevier Amsterdam no. 13.