Predictive Power of Output Growth, Inflation, and Interest Rate on Stock Return and Volatility: A Comparison
Year: 2010
Type: article
Abstract: 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.
Authors: Wai Ching Poon, Gee Kok Tong
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W263732491