Macroeconomic indicators and their impact on stock markets in ASIAN 3: A pooled mean group approach

The objective of this paper is to examine the long-run and the short-run relationship between India, China and Japanese stock markets and key macroeco- nomic variables such as exchange rates and inflation (proxied by consumer price index) of ASIAN 3 economies (India, China and Japan). Monthly time series data spanning the period from 2008 January to November 2016 has been used. The unit root test, the cointegration test, Granger causality test and pooled mean group esti- mator have been applied to derive the long-run and short-run statistical dynamics. The findings of pooled estimated results of ASIAN 3 countries show that exchange rate has a positive and significant long-run effect on stock markets while the infla- tion has a negative and insignificant long-run effect. In the short run, there is no statistically significant relationship between macroeconomic variables and stock markets. This study emphasises on the impact of macroeconomic variables on the stock market performance of a developing economy (India and China) and devel- oped economy (Japan).