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The dynamics of stock market returns and macroeconomic indicators: An ARDL approach with cointegration
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.).
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.).
2016 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
Dynamiken mellan aktiemarknadens avkastning och makroekonomiska indikatorer: En ARDL ansats med kointegration (Swedish)
Abstract [en]

Macroeconomic indicators are amongst the most important and used tools for investors as they provide an outlook for the economy and thus improve the assessment of investments e.g. for asset allocation. The purpose of this thesis is to investigate the short- and long-run relationship between the US stock market index S&P500 and six selected macroeconomic indicators during different time regimes during 2000-2016. The chosen indicators are Personal spending, Initial jobless claims, M1 Money supply, Building permits, Michigan Consumers Sentiment index and the ISM Manufacturing index as they measure different parts of the economy and are commonly used by investors. We achieve the purpose by using the Autoregressive Distributed Lags model (ARDL) as it has several advantages in relation to comparable time series models. The results show that all indicators except Personal spending are significant in the long-run on the 1-percent level, in at least one time-regime. All indicators have significant results also in the short-run except the Money Supply (M1), depending on which time period that is under investigation. Our conclusion is that our chosen indicators have different characteristics depending on the current dynamics of the stock market, economic state and other related markets. The practical implication for investors is that different indicators are of limited use depending on the current market dynamics and investors must evaluate the underlying premises of the development of the indicator rather than interpreting a specific datapoint.

Abstract [sv]

Makroekonomiska indikatorer är bland de mest viktiga och använda verktygen av investerare eftersom man kan få en överblick av den ekonomiska utvecklingen och således förbättra beslutsunderlaget vid till exempel tillgångsallokering. Syftet med denna avhandling är att undersöka de kort- och långsiktiga förhållandena mellan det amerikanska aktiemarknadsindexet S&P500 och sex utvalda makroekonomiska indikatorer under olika tidsperioder mellan 2000-2016. De valda indikatorerna är Personal spending, Initial jobless claims, M1 Money supply, Building permits, Michigan Consumers Sentiment index och ISM Manufacturing index eftersom de mäter olika delar av ekonomin och används kontinuerligt av investerare. Vi uppnår syftet genom att använda en Autoregressive Distributed Lags (ARDL) modell då den har flertalet fördelar i förhållande till jämförbara tidsseriemodeller. Resultaten visar att alla indikatorer utom Personal spending är signifikant på lång sikt på enprocentsnivån, över olika tidsperioder. Alla indikatorer har även signifikanta resultat på kort sikt förutom M1 Money supply, beroende på vilken tidsperiod som studeras. Vår slutsats är att dem valda indikatorerna har olika egenskaper beroende på den aktuella dynamiken i aktiemarknaden, ekonomin eller andra relaterade marknader. Den praktiska konsekvensen för investerare är att eftersom olika indikatorer är av begränsad användning beroende på den rådande marknadsdynamiken, måste investeraren noggrant utvärdera de underliggande villkoren för utvecklingen av en unik indikator snarare än att endast tolka en unik datapunkt.

Place, publisher, year, edition, pages
2016. , 88 p.
Series
Examensarbete INDEK, 59
Keyword [en]
Autoregressive Distributed Lags, ARDL, Macroeconomics, S&P500, Personal Spending, Initial Jobless Claims, M1 Money Supply, Building Permits, Michigan Consumers Sentiment index, ISM Manufacturing index
Keyword [sv]
Autoregressive Distributed Lags, ARDL, Makroekonomi, S&P500, Personal Spending, Initial Jobless Claims, M1 Money Supply, Building Permits, Michigan Consumers Sentiment index, ISM Manufacturing index
National Category
Economics
Identifiers
URN: urn:nbn:se:kth:diva-189995OAI: oai:DiVA.org:kth-189995DiVA: diva2:950080
External cooperation
SEB Investment Management
Subject / course
Industrial Economics and Management
Educational program
Master of Science in Engineering - Industrial Engineering and Management
Presentation
2016-06-02, Stockholm, 08:00 (English)
Supervisors
Examiners
Available from: 2016-09-01 Created: 2016-07-27 Last updated: 2016-09-01Bibliographically approved

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