Premium Essay

Macroeconomic Variables’ Impact on Bank’s Stock Price

In: Business and Management

Submitted By mahbub224
Words 3958
Pages 16
Chapter – 3.0

An overview – Banking sector & Stock Exchange and Conceptual framework – Macroeconomic variable

|3.1 An overview of Banking sector and Stock market of Bangladesh |

We are interested in investigating the relationship between stock prices and macroeconomic variables because individual investors can earn abnormal profits by exploiting this relationship and the existence of this utilizable opportunity would then dangerously distort the market’s ability to proficiently allocate scarce resources. In other word, the stock market will lose its informational efficiency.
Informational efficiency is defined as at any given time, stock prices fully reflect all available information of the market. Thus, no investor has an advantage in predicting a return on a stock price because no one has access to information not already available to everyone else. Identifying the relationship or informational efficiency thus can be used to correct the current economic stabilization policies.
Therefore, the issue of whether stock prices and macroeconomic variables are related or not have received considerable attention. This paper provides empirical evidence of the relationship between stock prices with each of the macroeconomic variables: exchange rate, inflation rate, money supply variables and so on. The knowledge of the prevailing relationship between stock prices one the one hand, and micro variables like market price/ earnings, growth rate in market capitalization, dividend yield and macro variables, like inflation, industrial production, foreign remittance, GDP and the like on the other hand, is predominantly important in view of the fact that a stable relationship among these variables is likely to form an important postulate in a variety of economic models. Many issues behind the stock market…...

Similar Documents

Premium Essay

Impact of Dividend on Stock Price

...“IMPACT OF DIVIDEND ON STOCK PRICES” ABSTRACT The project aims to establish the impact of dividend on market price of a share. This has been done for individual companies in Steel sector. After studying the basic concepts of dividends and dividend policy I am able to get a proper perspective of the requirements of the project and also gain a better understanding of the results obtained. I have looked to find the relation between pre dividend price change and the dividend using regression analysis. Similarly, I have analyzed the relation between the post dividend price change and the dividend. It is a matter of fact that dividends are declared by a company primarily to generate capital and also at certain times to maintain the market sentiment. It is in the best interests of the company to maximize the market value of its share and companies use dividend as a tool to maintain their corporate image. However, the degree of correlation between the dividend and the market price is low which implies that several other internal and external factors affect the market value of shares. To gain a holistic picture, I also did a comparative study of two peers in a sector (steel)to better understand how the specific requirements of each sector also impact the dividend policy of a company. The conclusions derived from the analysis performed further consolidated theoretical knowledge and deviations were better understood. SYNOPSIS “Impact......

Words: 8285 - Pages: 34

Premium Essay

Macro Economic Variable & Stock Return

...INTRODUCTION Macroeconomic Variables Macroeconomics is a branch of economics dealing with the performance, structure, behaviour, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies. Macroeconomic is a factor that is pertinent to a broad economy at the regional or national level and affects a large population rather than a few select individuals. Macroeconomic factors are key indicators of economic performance and are closely monitored by governments, businesses and consumers. Macroeconomic factors are the factors which affect the wider economy. In other words these factors seem to summarize the picture of economy. Macroeconomic variables include economic output, unemployment, inflation, interest rates, money supply, exchange rate, foreign reserves, savings and investment. Variables used in study: • Consumer Price Index (CPI) Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the CPI) over time. A consumer price index (CPI) measures changes in......

Words: 4182 - Pages: 17

Premium Essay

Macroeconomic Impact on Business Operations

...Running head: MACROECONOMIC IMPACT ON BUSINESS OPERATIONS Macroeconomic Impact on Business Operations Laurie Wilkinson University of Phoenix Macroeconomic Impact on Business Operations The Federal Reserve has the unique ability to control the money supply and stimulate the economy when needed. Any actions of the Federal Reserve can have an impact on macroeconomic factors and the balance in the economy. This paper will discuss the tools used to control the money supply, the effects of monetary policy on macroeconomic factors and the best way to achieve a balance in the combinations of monetary policy. The Federal Reserve has several tools available in order to control the money supply. The Reserve Ratio allows the Fed to raise or lower this ratio to affect the amount of money and ability a bank has to lend. The Open Market Operations is also available, where the Fed can buy or sell government bonds to the public and commercial banks. Depending on which they do this action can either increase the assets on hand or increase the reserves for the banks. Increasing the reserves allows banks to lend more. Finally, the Discount Rate is available to use. The Fed can make short term loans to banks, increasing the amount that the bank can lend out which in turn increases the money supply. If the bank increases the discount rate then banks will not want to borrow as much and it restricts the amount of money they have to lend. Monetary Policy can be looked at as a way the Federal......

Words: 1371 - Pages: 6

Premium Essay

Determinants Macroeconomics Variables and Stock Return

...of F in a n ce (H on ou r s) 2010 CHAPTER ONE INTRODUCTION 1.1 Introduction Stock market is a place for listed companies to raise capital .Companies can use the capital for continuing operating activities and expand business. However, the investors are explained to get a positive return from dividend and capital gain in the stock market. Based on the history, the economic condition will influence stock market. For instances, Malaysia faced deflation during the Asian crisis in years 1997. It caused the KLCI index sharply reduced from 1207.43 to 470.43. It have been shown that the investors need to predict the stock prices based on the macro factors to get an abnormal return from stock market There were a lot of researches to study the relationship between macroeconomics variables and stock returns. It is important to study the interaction of macroeconomics factor and stock return. Based on the study, the public can identify which factors can influence the stock market and use the knowledge to predict movement of stock price. According to Wongbangpo & Sharma (2002), the research can reveal the functions of stock market in identify the change in economic condition and also can predict the future performance of stock market. Besides, the study will be useful for the stock market participators. Clare & Priestley (1998) said that the study of the risk factor relationship of stock market will be useful for corporate manager to undertake cost of capital calculation.......

Words: 12578 - Pages: 51

Premium Essay

Globalization and Macroeconomic Variables Performance in Nigeria

...open up the economy and penetrate international markets. In time past, the world economy has undergone a fundamental shift towards an integrated and coordinated global division of labour in production and trade. In the 1950s and 1960s, productions were within national boundaries. The increase of oil prices in the late 1970s and the contractionary monetary policies of the United States during 1979 and 1982 period led to the increased interest rates and consequently indebted developing countries found they unable to service their debts. Continual refinancing was the only way to avoid default. By the end of the mid 1980s, there were both internal and external balances. Globalization is a term that is frequently used but seldom defined. It refers to the increase in the share of economic activity taking place across national boundaries. It is usually driven by a push towards liberalization of trade and investment regime. It minimizes the incentive for engaging in income generation but unproductive activities with protection such as smuggling, lobbying and tariff evasion. Globalization generally has positive and strong association on macroeconomic variables performance because more integrated economies tend to grow faster and the economic growth is usually widely diffused. Openness affects growth through the level of specialization and efficiency in a number of ways. Firstly, the increase in world trade and output made possible through globalization......

Words: 10565 - Pages: 43

Free Essay

Lognormal Stock-Price Models

...sense of . . . LogNormal stock-price models in Exams MFE/3 and C/4 James W. Daniel Austin Actuarial Seminars http://www.actuarialseminars.com June 26, 2008 c Copyright 2007 by James W. Daniel; reproduction in whole or in part without the express permission of the author is forbidden. Foreword This document briefly describes the ideas behind the use of LogNormal models for stock prices in some of the material for Exams MFE and C of the Society of Actuaries and Exams 3 and 4 of the Casualty Actuarial Society. Not a traditional exam-prep study manual, it concentrates on explaining key ideas so that you can then understand the details presented in the textbooks or study manuals. It can be especially useful to anyone taking Exam C/4 without having studied the material for Exam MFE/3. 2 Chapter 1 LogNormal stock-price models 1.1 Why LogNormal models? Why learn about and use LogNormal models for stock prices? I could answer “Because it’s on the exam syllabi” or “Why not?”, but that wouldn’t be helpful. Instead, I’ll take a little space to motivate this. Suppose that the price of a stock or other asset at time 0 is known to be S(0) and we want to model its future price S(10) at time 10—note that some texts use the notation S0 and S10 instead. Let’s break the time interval from 0 to 10 into 10,000 pieces of length 0.001, and let’s let Sk stand for S(0.001k), the price at time 0.001k. I know the price S0 = S(0) and want to model the price S10000 = S(10). I can......

Words: 5362 - Pages: 22

Premium Essay

Effect of Oil Prices in Indian Stock Market

...Impact of Macro-Economic Variables on the Stock Market Impact of Macro-Economic Variables on the Stock Market Arunabha Dhar (Roll No. 008) Gaurav Bhatt (Roll No. 017) Amartya Ray (Roll No. 067) Bodhisatva Basu (Roll No. 075) Rahul Jain (Roll No. 094) Arunabha Dhar (Roll No. 008) Gaurav Bhatt (Roll No. 017) Amartya Ray (Roll No. 067) Bodhisatva Basu (Roll No. 075) Rahul Jain (Roll No. 094) Contents UNDERSTANDING ON RESEARCH PROBLEM IDENTIFICATION & DEFINITION 3 ABSTRACT 3 INTRODUCTION 3 LITERATURE REVIEW 6 GAP in Research 8 MOTIVATION 8 DATA COLLECTION/SAMPLE SELECTION 9 HYPOTHESIS 10 Research Methodology 10 FINDINGS 11 CONTRIBUTION TO LITERATURE 23 CONCLUSIONS 23 References 25 UNDERSTANDING ON RESEARCH PROBLEM IDENTIFICATION & DEFINITION Relationship between macroeconomic variables and broad market index: A causal relationship between Nifty CNX and macroeconomic variables in India ABSTRACT The relationship between macroeconomic variables and broad market index by now are well documented in the literature. However a void in the literature relates to examining the causal relationship between Nifty CNX and macroeconomic variables such as FDI, FPI, weighted average lending rate (WALR), GDP and oil import in India and correlation among the macro variables. INTRODUCTION Globalization of Indian economy post liberalization has been spurred by capital and stock investment in terms of FDI & FPI. Indian stock market both......

Words: 6806 - Pages: 28

Premium Essay

Macroeconomic Variables

...Macroeconomic Variables MBA -502 Economics for Business The financial services industry is influenced by a vast number of variables. These variables affect the way people invest their money, how much they invest, what types of investments they choose, etc. The Principal Financial Group is not immune to these variables. Some of the macroeconomic variables that directly affect the products and services Principal offers are unemployment, inflation, government regulation, interest rates, and consumer income. Unemployment will affect the services and products that are provided by the Principal because those individuals who are not making a steady income will most likely not be customers. By the same token, customers who were employed that have become unemployed will either cease to be customers of Principal or may withdraw money from existing accounts. While these loans will be paid back with interest, they diminish the amount of money the Principal has to place that money in more lucrative investments. According to Stephen D. Simpson “… the experience of unemployment (either direct or indirect) can alter how workers plan for their futures…”. Inflation will cause the price of goods and services to rise. For the average consumer, this means that the more they spend on food, gas, housing, etc. the less money they have to spend on investments. While retirement savings are an important part of saving for the future, high inflation causes day to day living......

Words: 897 - Pages: 4

Premium Essay

Predictability of Stock Price on Nigeria Stock Exchange

...predictability CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO THE STUDY The performance of an economy is dependent largely on the efficient performance of its financial markets, since they facilitate the financing of productive activity and hence national output and economic growth. In this research report, the key roles and function of the financial markets are highlighted with the thrust of the discussion on the core issue of how the market works; directly and indirectly. One of the most important factors for rapid economic development is the effective mobilization and allocation of scarce resources within an economy. These resources can be real or financial, but they are scarce and command a price. The establishment of effective and efficient channel for the mobilization and allocation of scarce financial resources is therefore essential. The financial market, comprising of the money and capital markets, occupies an important place in most economies of the world. The primary function of a financial market is to enable funds to be sufficiently allocated from the surplus units of the economy to the deficit units for productive investment. The greater the transmission efficiency is, the higher the rate of growth of the economy (Olowe, 1997). The money market trades only in securities or debt instruments maturing in less than twelve months, while in the capital market, longer term debts as well as equity instruments are traded. The complementarity between money......

Words: 11803 - Pages: 48

Premium Essay

To Study the Impact of Oil Price Shocks on the Macroeconomic Performance of China

... Research Proposal on “To study the impact of oil price shocks on the macroeconomic performance of China” Table of Contents Dissertation Title 3 Introduction 3 Rationale of Study: Error! Bookmark not defined. Outline of the Research Project: Error! Bookmark not defined. Research Questions Error! Bookmark not defined. Research Aim and Objectives Error! Bookmark not defined. Significance of the study………………………………………………………………………………………………………………………..11 Research Methodology………………………………………………………………………………………………………………………….15 Research philoshophy…………………………………………………………………………16 Research Design…………………………………………………………………………………………………………………………………18 Data Collection…………………………………………………………………………………………………………………………………..22 Data Analysis…………………………………………………………………………………………………………………………………….28 literature review……………………………………………………………………………………………………………………………………36 References ……………………………………………………………………………………………………………………………………………42 Dissertation Title “To study the impact of oil price shocks on the macroeconomic performance of China” 1. Introduction Higher oil prices might affect the global economy through a variety of channels, including transfer of wealth from oil consumers to oil producers, a rise in the cost of production of goods and services, and impact on inflation, consumer confidence, and financial markets. In a pioneer work, Hamilton (1983) indicated that higher oil prices were responsible for almost all U.S recessions after World War II. Later other......

Words: 10757 - Pages: 44

Premium Essay

Relationship Between Stock Price and Futures

...The relationship between stock prices and exchange rates in China Mengyuan Chen Illinois Wesleyan University Dec 10, 2012 Abstract This paper uses the data of RMB exchange rates and stock market prices in China from 1994 to 2011 to estimate the relationship between stock prices and exchange rates. There are two major theories concerning the relationship. According to the portfolio balance effect, these two variables should be negatively related; in addition, according to the international trading effect theory, these two variables should be positively related. The linear regression model is adopted to observe the various relationships between stock and foreign exchange markets. The results confirmed my hypothesis, which indicates that the international trading effect is more dominant, thus the net effect is a positive causal relationship from exchange rates to stock prices. I. Introduction Within the emerging Chinese market, China now has more open policies and advanced financial market instruments to promote globalization. For example, China started to allow the RMB to float within a larger daily range in 2005 and brought derivative options into the stock market. These significant steps all suggest that China is beginning to face a new economic condition. For instance, the challenging policy making of RMB exchange rate is one. Exchange rates and stock prices are both key indicators of the economy and financial markets. So the relationship between those two becomes......

Words: 2999 - Pages: 12

Premium Essay

Macroeconomic Aspects for Defensive Stock Investing

...Macroeconomic aspects for defensive stock investing In the past decade, the stock market has had many ups and downs and private investors perceive stock investing more and more speculative and unpredictable. Part of this perception roots from the general trend towards computerized high frequency trading, which in 2010 accounted for up to 70 % of all trades made in the market. High frequency trading is done by mega computers which are programmed to take advantage of the slightest changes in the stock price by buying and selling within fractions of a second. Those programs pay no regard to the actual social and economic value of the company. Trends like that and criminal like actions by almost all major banks around the world (including inside trading, misinformation of customers, ruthless risk taking, etc. which lead to the worldwide economy crisis in 2008) leave private investors with the feeling that they get betrayed and can’t keep up with the rapid stock market. They might think that stocks are not a good investment tool for private investors anymore. However, statistics show that stocks measured over any ten-year time period for the last 75 years, have yielded a higher return than conservative investments in bonds or bank certificates of deposit (Kelly, 2007). For the mentioned and several other reasons, one still should consider using stocks as an investing tool. Consequently, if you can’t win the very short term, high frequency trading game, you might want to play a......

Words: 1897 - Pages: 8

Premium Essay

Underwriters Impact on Ipo Price

...postgraduate but also undergraduate degree. Contents: 1. Introduction 1 2.1 Background to the IPOs……….………...............................................................1 2.2 Problem Discussion………….……...…………………….………………….....4 2.3 Contribution of the study……………………………………….……...………..5 2. Literature Review 6 2.1 Lockup Agreements…………………………………………………………….6 2.2 The Stabilization process-price support………………………………………...7 2.3 A theoretical background to underpricing………………………...……………8 2.4 The adverse selection……………………………………………………...…....8 2.5 How can underwriters affect underpricing………………….……………..……9 2.6 The role of institutional investors……………………………………….……..11 2.7 Issuers’ holdings……………………………………………….………………11 2.8 Underwriters’ purchases…………………………………………………….…12 3. Development of Hypotheses 13 3.1 Information asymmetry & Underwriters’ holdings impact on IPO price………13 3.2 The issue of realizing profits……………………………………………………15 4. Methodology 16 4.1 Dataset and Measurement of Variables…………………………………………16 4.2 Empirical Models……………………………………………………………….17 5. Empirical Results 19 5.1 Trading in the Short Term………………………………………………………19 5.2 The information advantage issue………………………………………………..19 6. Conclusion 20 Reference 21-22 Appendix 23-38 Introduction: 1.1 IPOs background information: The past few years saw one of the......

Words: 8556 - Pages: 35

Premium Essay

Impact of Dividend Policy on Stock Price

...IMPACT OF DIVIDEND POLICY ON SHAREHOLDERS’ VALUE: A STUDY OF INDIAN FIRMS Synopsis of the Thesis to be submitted in fulfillment of the requirements for the Degree of DOCTOR OF PHILOSOPHY In MANAGEMENT By Sujata Kapoor Enrollment No: 064009053 Date of Registration: July 2006 Under the Guidance of Supervisor: Dr Kanwal Anil Co-Supervisor: Dr Naseem Abidi Jaypee Institute of Information Technology, Noida A-10, SECTOR 62, NOIDA, INDIA (12) December, 2009 Sujata Kapoor, JBS, JIIT,Dec’ 2009 TABLE OF CONTENTS S. no. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Contents Introduction Review of the literature Research objectives Research Methodology Lintner Model: Analysis and findings Factor Analysis and Regression results on Extracted Factors Quadratic Polynomial Regression Analysis & Findings Event study: Analysis & Findings Conclusion Chapter plan Selected References Annexure Page no. 4-9 9-14 14-15 15-23 23-24 24-28 28-30 30-32 32-35 35-36 36-38 (III-XX) 2 Sujata Kapoor, JBS, JIIT,Dec’ 2009 KEY TERMS DIVIDEND PAYOUT RATIO: The percentage of earnings paid to shareholders in dividends. Calculated as: DIVIDEND POLICY: The policy a company uses to decide how much it will pay out to shareholders in dividends. SHAREHOLDERS’ VALUE: The value delivered to shareholders because of management's ability to grow earnings, dividends and share price. In other words, shareholder value is the sum of all strategic decisions that affect the firm's ability to efficiently......

Words: 16016 - Pages: 65

Premium Essay

Coca-Cola and the Price Variable

...Coca-Cola The Price Variable Coca-Cola Amatil implement several pricing strategies in attempt to attract its target market and convey certain messages about their products. In order to remain competitive within the market Coca-Cola Amatil tend to avoid using just one pricing strategy. As the majority of Coca-Cola sales come through retail outlets such as supermarkets, convenience stores, and fast-food restraunts, Coca-Cola Amatil doesn’t have entire control over the final consumer price, although there are certain pricing strategies implemented by Coca-Cola Amatil used to entice its target market. Discounting, price skimming and price lining are all pricing strategies commonly used in conjunction with their ‘headline’ beverage, Coca-Cola. Coca-Cola can be found in a number of bottled and canned forms, with fairly competitive prices that have now become an industry standard (see figure 1,2 and 3). [pic] [pic] [pic] An example of a pricing strategy used for the Coca-Cola product is price skimming. Price skimming involves charging the highest price possible for innovative products. Price skimming is usually used for a new product on the market. When competitors enter the market this strategy is usually dropped. Coca-Cola Amatil combine an approach of discounting certain lines each week (whether it be 375ml can, 600ml, 1.25L, or 3L bottles) with price skimming, particularly at convenience stores such as service stations. Coca-Cola products are never......

Words: 363 - Pages: 2

Pożegnanie z Europą download | Peruvian Nuevo Sol | BCLM Vintage 800 Silber Granat Armreif Damen Trachten Schmuck granet bracelet