Macroeconomic Factors - Evidence from USA

Macroeconomic Factors and Stock Returns: Evidence from USA
Name
Course
Institution
Date
Macroeconomic Factors and Stock Returns: Evidence from USA
Abstract
Correlation between share prices of different firms and macroeconomic variables spur a lot of attention and debate amongst economists and financial scholars. Contemporary, there is increasing integration of financial markets and implementation of reforms connected with stock markets. Amazingly, many scholars assume that there is great significance within the various activities that occur within stock exchange markets. Stock market forecasting and prediction has basis on information obtained from the stock exchange markets. In order to attain such forecasts and predictions, economists considered significantly the macroeconomic variables. Even though there are numerous studies on the same topic, market dynamisms and turbulences call for more studies. Consequently, this is a continuation of previously conducted study. In this study, researcher attempts to establish correlation between index returns and specific macroeconomic variable namely exchange rates, Gross Domestic Product (GDP), unemployment, Treasury bill rates, and West Texas Intermediate (WTI) with evidence Taiwan. The main purpose of this study is to establish in details and finely correlation between stock prices and the mentioned macroeconomic variables. This follows empirical studies earlier on identifying such relationships.
Introduction
Essentially, efficient capital markets experience significant fluctuations of security or stock prices with inflow of information. Just like perfectly competitive markets, capital markets have full information as most of the stocks or shares exchanged are advertised openly, not only via media but also within the stock market (Flannery & Protopapadakis, 2004). In any case, efficient capital market hypothesis states that stock prices of publicly traded organizations must have relevant information, which is also publicly available information. Policy makers and stockbrokers need such information in order to make proper and informed decisions regarding investments into publicly traded firms. From this perspective, there are no restrictions for such individuals to carry out national macroeconomic policies without any intentions of influencing capital market structures and operations. In view of economic theories, expectations on future corporate performance rely significantly on stock prices. In addition, levels of economic activities within a given nation are congruent to corporate profits of firms in the same region. Following this argument, stock prices are a true representation of the underlying economic fundamentals hence indicators of economic activities.
The following is a study report on correlation between stock prices and macroeconomic variables that include exchange rates, Gross Domestic Product (GDP), unemployment, Treasury bill rates, and West Texas Interme...