Interactions Between Macroeconomic Variables and Stock Market Indices: Evidence From Germany, Denmark, and Spain, Including the Period of Crisis

Interactions Between Macroeconomic Variables and Stock Market Indices: Evidence From Germany, Denmark, and Spain, Including the Period of Crisis

Apostolos G. Christopoulos (National and Kapodistrian University of Athens, Greece), Nikolaos Demiroglou (Panteion University of Social and Political Sciences, Greece) and Ioannis G. Dokas (Democritus University of Thrace, Greece)
DOI: 10.4018/978-1-5225-6114-9.ch002

Abstract

The relationship between the performance of capital markets and changes in several macroeconomic variables has worried many researchers over time. This chapter focuses on two main areas: 1) the analysis of the behavior of per capita consumption and private investment expenditure using the model ARMA (m, n), and the impact of economic crisis on them, and 2) the examination of causal relationships between key macro-variables and selected key stock exchange indices. The analysis is carried out for the period 1995-2013 for Germany, Denmark, and Spain, which were selected on the basis of their economic position (GDP) in the European Union (E.U.). From the research, the authors found that the crisis of 2008-2009 had effects on households and businesses, which reduced their planning horizon with respect to consumption and investment. Regarding the second part of this study, the authors used the Granger causality test to find that the stock index DAX of Germany determines, to some extent, the changes in macroeconomic variables.
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Literature Review

The sharp fall observed in the capital markets in the summer of 2008, was a kind of announcement of the economic cycle that will ensue for the global economy. The markets have a tendency to discount the negative or positive developments in the real economy, but the factors that lead participants in a massive liquidation of securities have not been analyzed in detail yet.

Based on the efficient markets hypothesis and the assumption of rational expectations, the asset prices are significantly dependent by variables which can describe the state of an economy. This conclusion is consistent with classical valuation models (Merton; 1973, Ross; 1976, Cox et al; 1985 etc.).

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