The predictive content of GDP growth and inflation for stock returns and volatility: Evidence for Philippine stock market efficiency
Date of Publication
2011
Document Type
Bachelor's Thesis
Degree Name
Bachelor of Science in Management of Financial Institutions
Subject Categories
Finance and Financial Management
College
Ramon V. Del Rosario College of Business
Department/Unit
Financial Management
Thesis Adviser
Junnette Perez
Defense Panel Chair
Rene Hapitan
Defense Panel Member
Christian Romagos
Carmelita Clerigo
Neriza Delfino
Abstract/Summary
Studies arrive at different conclusions regarding relationship of gross domestic product (GDP) growth and inflation to stock returns and its volatility. These results are heavily dependent on the country and period under observation. Even so, there is a general agreement within the literature that theoretically, GDP growth increases stock returns, while inflation has the opposite effect. The effect of the independent variables on the volatility of stock returns, however, is more ambigous because our review of the literature reveals no strong governing theory involved. We argue that since numerous studies classify the Philippine stock market under weak-form efficiency, economic variables such as GDP growth and inflation may be statistically significant predictors of stock returns. This study uses domestic macroeconomic and financial data on GDP growth, the consumer price index (CPI) and the Philippine Stock Exchange index (PSEi). We primarily use a generalized autoregressive conditional heteroscedasticity (GARCH) model, but also test the data using OLS. Robustness tests are done to account for changes caused by recent time periods, the 2008 global financial crisis and headline vs. core inflation. We find that GDP growth was but no longer is a significant predictor of stock returns, leading us to hypothesize that the efficiency in the Philippine stock market may be increasing. Also, inflation has significant predictive power for volatility and may be used as an informational tool to mitigate risk when trading equities.
Abstract Format
html
Language
English
Format
Accession Number
TU21596
Shelf Location
Archives, The Learning Commons, 12F, Henry Sy Sr. Hall
Physical Description
143 leaves : illustrations (some color) ; 28 cm.
Keywords
Gross domestic product--Philippines; Stock exchanges--Philippines
Recommended Citation
Aquilizan, M., Barandiaran, A. V., Gaw, M. W., & Mirpuri, R. H. (2011). The predictive content of GDP growth and inflation for stock returns and volatility: Evidence for Philippine stock market efficiency. Retrieved from https://animorepository.dlsu.edu.ph/etd_bachelors/7886