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Article
Publication date: 11 November 2014

Khushbu Agrawal and Yogesh Maheshwari

This paper aims to find out significant macroeconomic variables, incorporated as sensitivity variables (macroeconomic sensitivities), affecting financial distress for a…

Abstract

Purpose

This paper aims to find out significant macroeconomic variables, incorporated as sensitivity variables (macroeconomic sensitivities), affecting financial distress for a sample of listed Indian firms.

Design/methodology/approach

The study uses a matched pair sample of defaulting and non-defaulting listed Indian firms. It uses two alternative statistical techniques, viz., logistic regression and multiple discriminant analysis. The macroeconomic sensitivities are estimated by regressing the monthly stock return of the individual firm on the monthly changes in each macroeconomic variable.

Findings

Sensitivity to changes in the stock market (stock market sensitivity) and sensitivity to changes in inflation [Consumer Price Index (CPI) sensitivity] have a significant impact on the default probability of a firm. Stock market sensitivity has a significant positive relationship with the probability of default, and CPI sensitivity has a significant negative relationship with the probability of default.

Originality/value

The study links the developments in the external environment to the firm’s susceptibility to default. Furthermore, it highlights the significance of sensitivity of a firm to uncertainties in the macroeconomic environment and its impact on default risk. This establishes the fact that each firm is uniquely affected by the changes in the overall macroeconomic environment. The findings could be valuable to lenders such as banks and financial institutions, investors and policymakers.

Details

Journal of Indian Business Research, vol. 6 no. 4
Type: Research Article
ISSN: 1755-4195

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Article
Publication date: 6 May 2014

Peter Mazuruse

The purpose of this paper was to construct a canonical correlation analysis (CCA) model for the Zimbabwe stock exchange (ZSE). This paper analyses the impact of…

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Abstract

Purpose

The purpose of this paper was to construct a canonical correlation analysis (CCA) model for the Zimbabwe stock exchange (ZSE). This paper analyses the impact of macroeconomic variables on stock returns for the Zimbabwe Stock Exchange using the canonical correlation analysis (CCA).

Design/methodology/approach

Data for the independent (macroeconomic) variables and dependent variables (stock returns) were extracted from secondary sources for the period from January 1990 to December 2008. For each variable, 132 sets of data were collected. Eight top trading companies at the ZSE were selected, and their monthly stock returns were calculated using monthly stock prices. The independent variables include: consumer price index, money supply, treasury bills, exchange rate, unemployment, mining and industrial index. The CCA was used to construct the CCA model for the ZSE.

Findings

Maximization of stock returns at the ZSE is mostly influenced by the changes in consumer price index, money supply, exchange rate and treasury bills. The four macroeconomic variables greatly affect the movement of stock prices which, in turn, affect stock returns. The stock returns for Hwange, Barclays, Falcon, Ariston, Border, Caps and Bindura were significant in forming the CCA model.

Research limitations/implications

During the research period, some companies delisted due to economic hardships, and this reduced the sample size for stock returns for respective companies.

Practical implications

The results from this research can be used by policymakers, stock market regulators and the government to make informed decisions when crafting economic policies for the country. The CCA model enables the stakeholders to identify the macroeconomic variables that play a pivotal role in maximizing the strength of the relationship with stock returns.

Social implications

Macroeconomic variables, such as consumer price index, inflation, etc., directly affect the livelihoods of the general populace. They also impact on the performance of companies. The society can monitor economic trends and make the right decisions based on the current trends of economic performance.

Originality/value

This research opens a new dimension to the study of macroeconomic variables and stock returns. Most studies carried out so far in Zimbabwe zeroed in on multiple regression as the central methodology. No study has been done using the CCA as the main methodology.

Details

Journal of Financial Economic Policy, vol. 6 no. 2
Type: Research Article
ISSN: 1757-6385

Keywords

Content available
Article
Publication date: 3 August 2021

Rexford Abaidoo and Elvis Kwame Agyapong

This study examines how specific micro-level macroeconomic indicators influence corporate performance volatility among US corporate bodies in the short run.

Abstract

Purpose

This study examines how specific micro-level macroeconomic indicators influence corporate performance volatility among US corporate bodies in the short run.

Design/methodology/approach

The study employs error correction autoregressive distributed lagged (ARDL) model (ECM) to examine how micro-level variables influence volatility associated with corporate performance in the short run.

Findings

This paper finds that disaggregated or micro-level variables examined, tend to exhibit features that are not readily apparent from the aggregate variable from which such variables are derived. For instance, reported empirical estimate suggests that, growth in expenditures on services and nondurable goods tend to lower volatility associated with corporate performance, whereas government expenditures and expenditures on durable goods rather worsens volatility associated with corporate performance, all things being equal. Additionally, presented empirical estimates further provide evidence suggesting that macroeconomic uncertainty and inflation uncertainty significantly moderate or influence the extent to which disaggregated variables impact corporate performance volatility.

Originality/value

Compared to related studies in the reviewed literature, this study rather examines volatility associated with corporate performance instead of the corporate performance indicator itself. Additionally, this paper also examines how disaggregated variable instead of aggregate variables impact such volatility. Finally, the moderating role of key macroeconomic conditions in such a relationship is also examined.

Details

Journal of Money and Business, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2634-2596

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Article
Publication date: 16 May 2019

Rexford Abaidoo

The purpose of this study is to empirically examine the extent to which volatility associated with corporate performance could be attributed to specific adverse…

Abstract

Purpose

The purpose of this study is to empirically examine the extent to which volatility associated with corporate performance could be attributed to specific adverse macroeconomic conditions in a bivariate causality analysis.

Design/methodology/approach

The study uses the Toda–Yamamoto Wald test approach to Granger causality analysis in verifying significant causal interactions if any, between corporate performance volatility and seven macroeconomic conditions or variables.

Findings

This study finds that economic policy uncertainty and macroeconomic uncertainty tend to have bidirectional causal interaction with corporate performance volatility. In addition, estimated results further suggest significant unidirectional causal interaction between corporate performance volatility and inflation expectations, exchange rate volatility, inflation and inflation uncertainty, with direction of causality running from the macroeconomic variables toward corporate performance volatility. This study, however, found no significant causal interaction between corporate performance volatility and recessionary probability or likelihood of recession.

Practical implications

This study’s conclusions could have significant and critical policy implications for key corporate policymakers responsible for corporate performance strategy. Various causal interactions identified could inform policy framework and, subsequently, strategies geared toward minimizing volatility associated with performance during episodes of any of the various macroeconomic conditions examined in this study.

Originality/value

The uniqueness of this study stems from its focus on corporate performance volatility instead of corporate performance and potential causal interactions it might have with key adverse macroeconomic conditions, some of which have not been examined in previous studies according to reviewed literature.

Details

Journal of Financial Economic Policy, vol. 11 no. 4
Type: Research Article
ISSN: 1757-6385

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Article
Publication date: 20 August 2018

Rexford Abaidoo

The purpose of this paper is to examine how specific macroeconomic indicators and conditions impact short- and long-run loan delinquency rates among US commercial banks…

Abstract

Purpose

The purpose of this paper is to examine how specific macroeconomic indicators and conditions impact short- and long-run loan delinquency rates among US commercial banks under various economic episodes.

Design/methodology/approach

The study employs an autoregressive distributed lag framework (ARDL) and error correction model in its examination of how loan delinquency rates are impacted by specific macroeconomic variables and conditions.

Findings

This study finds that in both the short and long run, a percentage growth in macroeconomic indicators, such as industrial productivity and private domestic investments, reduces loan delinquency rates among commercial banks, given all things being equal. Additionally, this study also finds that adverse macroeconomic conditions, such as inflation, economic policy uncertainty and volatility, associated with specific macroeconomic variables, such as investment growth, etc., tend to worsen loan delinquency rates. Empirical results further suggest that among the various macroeconomic conditions examined, inflationary pressures tend to have the most significant heightening impact on loan delinquency rates among commercial banks.

Originality/value

The uniqueness of this study, compared to similar studies found in the literature, has to do with its verification of potential association between loan delinquency rates and specific hitherto unexamined macroeconomic conditions. Compared to similar studies on loan delinquency, this study collectively examines how conditions of uncertainty, volatility and expectations of macroeconomic conditions shape loan delinquency rates among commercial banks.

Details

American Journal of Business, vol. 33 no. 3
Type: Research Article
ISSN: 1935-5181

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Article
Publication date: 26 February 2020

Karsten Staehr and Lenno Uusküla

Large or increasing stocks of non-performing loans in the banking sector constitute threats to financial stability. This paper considers to which extent various…

Abstract

Purpose

Large or increasing stocks of non-performing loans in the banking sector constitute threats to financial stability. This paper considers to which extent various macroeconomic and macro-financial factors may serve as leading indicators for the dynamics of the ratio of non-performing loans to total loans.

Design/methodology/approach

The paper estimates panel data models for all EU countries and two groups of EU countries using quarterly data over approximately 20 years.

Findings

The estimations show that many macroeconomic and macro-financial variables are leading indicators for non-performing loans in the EU countries, even years ahead. Higher GDP growth, lower inflation and lower debt are robust leading indicators of a lower ratio of non-performing loans in the future. The current account balance and real house prices are important indicators for the Western European group but not for the Central and Eastern European group.

Research limitations/implications

The estimations are carried out for panels of EU countries and the effects may hence be seen as averages for the countries in the particular panel and may not apply for individual countries.

Practical implications

National and international authorities have brought in systems to detect and address imbalances and emerging problems in the financial sectors. Many of the measures operate with long lags, and so it is important to assess whether various macroeconomic and macro-financial variables may serve as leading indicators for future developments of non-performing loans.

Originality/value

The main contribution of the paper is that it estimates models meant expressly for predicting non-performing loans several years ahead. The results are thus of practical use for national and international authorities which typically have access to measures that operate with a long delay. The analysis also includes more macroeconomic and macro-financial variables as leading indicators than have typically been used in earlier studies.

Details

Journal of Economic Studies, vol. 48 no. 3
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 21 April 2011

Anastasios G. Malliaris and Ramaprasad Bhar

The equity premium of the S&P 500 index is explained in this paper by several variables that can be grouped into fundamental, behavioral, and macroeconomic factors. We…

Abstract

The equity premium of the S&P 500 index is explained in this paper by several variables that can be grouped into fundamental, behavioral, and macroeconomic factors. We hypothesize that the statistical significance of these variables changes across economic regimes. The three regimes we consider are the low‐volatility, medium‐volatility, and high‐volatility regimes in contrast to previous studies that do not differentiate across economic regimes. By using the three‐state Markov switching regime econometric methodology, we confirm that the statistical significance of the independent variables representing fundamentals, macroeconomic conditions, and a behavioral variable changes across economic regimes. Our findings offer an improved understanding of what moves the equity premium across economic regimes than what we can learn from single‐equation estimation. Our results also confirm the significance of momentum as a behavioral variable across all economic regimes

Details

Review of Behavioural Finance, vol. 3 no. 1
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 26 July 2013

Rangan Gupta and Monique Reid

The objective of this paper is to explore the sensitivity of industry‐specific stock returns to monetary policy and macroeconomic news. The paper looks at a range of…

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1824

Abstract

Purpose

The objective of this paper is to explore the sensitivity of industry‐specific stock returns to monetary policy and macroeconomic news. The paper looks at a range of industry‐specific South African stock market indices and evaluates the sensitivity of these indices to various unanticipated macroeconomic shocks.

Design/methodology/approach

The authors begin with an event study, which examines the immediate impact of macroeconomic shocks on the stock market indices, and then use a Bayesian vector autoregressive (BVAR) analysis, which provides insight into the dynamic effects of the shocks on the stock market indices, by allowing them to treat the shocks as exogenous through appropriate setting of priors defining the mean and variance of the parameters in the VAR.

Findings

The results from the event study indicate that with the exception of the gold mining index, where the CPI surprise plays a significant role, monetary surprise is the only variable that consistently negatively affects the stock returns significantly, both at the aggregate and sectoral levels. The BVAR model based on monthly data, however, indicates that, in addition to the monetary policy surprises, the CPI and PPI surprises also affect aggregate stock returns significantly. However, the effects of the CPI and PPI surprises are quite small in magnitude and are mainly experienced at shorter horizons immediately after the shock.

Originality/value

To the best of the authors' knowledge, this is the first study conducted on South Africa which analyses the impact of a wide range of unanticipated macroeconomic shocks on stock returns. This paper improves on earlier efforts by using measures of monetary policy, as well as other macroeconomic news, which more cleanly isolates the unanticipated elements of the monetary policy variable and other macroeconomic indicators, in studying the impact of these surprises on stock returns in South Africa.

Details

Studies in Economics and Finance, vol. 30 no. 3
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 17 October 2008

Seema Narayan and Russell Smyth

The purpose of this paper is to examine the time series properties of 26 macroeconomic variables in Papua New Guinea (PNG) over the period 1970‐2006.

Abstract

Purpose

The purpose of this paper is to examine the time series properties of 26 macroeconomic variables in Papua New Guinea (PNG) over the period 1970‐2006.

Design/methodology/approach

Both unit root and stationarity tests without a structural break and the Lagrange Multiplier (LM) unit root test with one and two structural breaks developed by Lee and Strazicich are applied to each of the 26 macroeconomic variables in PNG. Compared to popular ADF‐type endogenous unit root tests such as those proposed by Zivot and Andrews and Lumsdaine and Papell, the LM unit root test with one and two structural breaks has the advantage that it is unaffected by breaks under the null.

Findings

The unit root and stationarity tests without structural breaks find at best mixed evidence of mean reversion and/or trend reversion for most variables. This result is likely to reflect the failure of these tests to allow for structural breaks, given the power to find stationarity declines if the data contain a structural break that is ignored. When the LM unit root test with one and two structural breaks is applied, it is found that at least 23 of the 26 macroeconomic variables are trend stationary.

Originality/value

The time series properties of macroeconomic variables have important implications for several macroeconomic theories. There are, however, few studies of the time series properties of macroeconomic variables in developing countries and no comprehensive studies for any of the Pacific Island countries. This paper begins to fill this gap as the first to provide a systematic examination of the time series properties of macroeconomic variables in Paua New Guinea.

Details

International Journal of Social Economics, vol. 35 no. 12
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 15 June 2010

Thomas Gosnell and Ali Nejadmalayeri

The purpose of this paper is to determine if macroeconomic announcements affect the Fama‐French market, size, book‐to‐market risk factors and momentum factor.

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1582

Abstract

Purpose

The purpose of this paper is to determine if macroeconomic announcements affect the Fama‐French market, size, book‐to‐market risk factors and momentum factor.

Design/methodology/approach

Using unexpected announcements of major macroeconomic indicators, a study is made of how daily innovations of risk factors react to macroeconomic shocks. In a Flannery and Protopapadakis framework, the impact of macroeconomics surprises on the levels and volatilities of the risk factors is measured. A VAR model is employed as a robustness check. To better understand the mechanism of announcement impacts on risk factors, the relationship between the macroeconomics announcements and Fama‐French size/book‐to‐market portfolio returns is investigated.

Findings

Inflation, employment, consumption and business activities were found to affect levels and volatilities of risk factors. However, these macro variables affect risk factors differently. Inflation and non‐farm payrolls decrease the market risk premium while increasing the size premium. Personal income increases the size premium while reducing the book‐to‐market premium. Industrial production and GDP only influence the level of the momentum factor. In this model specification, producer inflation (PPI) and personal income increase the volatility of the size premium while business inventories increase the volatility of the market premium.

Originality

This paper's results support the notion that different risk factors capture different economic fundamentals.

Details

Managerial Finance, vol. 36 no. 7
Type: Research Article
ISSN: 0307-4358

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