A STUDY ON IMPACT OF MACROECONOMIC FACTORS ON INVESTMENT

DECISION MAKING

REVIEW OF LITERATURE

TITLE Estimating the Effects of Macroeconomic Factors on Investments in Malaysia

SCHOLARS Nik Suriati, N. Hassan

PUBLISHED IN 2009

Investment is one of the components in Gross Domestic Product (GDP). As a GDP

component from the current domestic expenditure side, investment has an immediate impact
on GDP. GDP will increase if the level in investment in our country is high. This paper
presents an analysis of the investment determinant in Malaysia based on neoclassical model
with modification for the period from year 1978 to year 2007. In this empirical analysis, a
model consists of saving, foreign direct investment, exchange rate, interest rate and inflation
is constructed to show domestic investment behaviour. Based on Johansen and Juselius
approach, in long run, results indicate that saving, foreign direct investment, interest rate and
inflation are the determinants of total domestic investment. In case of private investment, it is
influenced by saving, foreign direct investment, interest rate, inflation and exchange rate. On
the other hand, based on the result of vector error correction model (VECM) that show the
short run relationship, saving, foreign direct investment, interest rate, inflation and exchange
rate are insignificant in explaining both total domestic investment and private investment.
Error Correction component, ECM is the only significant variable for total domestic
investment and private investment. ECM is important to show the speed of adjustment. For
total domestic investment, it’s significant with 61% adjustment in short run and for private
investment; it’s significant with 74% adjustment in short run. This suggests that the suitable
policy should be applied based on the significant result to increase domestic investment in
Malaysia.

TITLE Effects of Investment on Macroeconomic Variables in the Sudanese Economy

SCHOLARS Issam A.W. Mohamed

PUBLISHED IN 2010

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Most developing and underdeveloped countries beside Sudan suffer from the low levels of
income in addition to the low savings that are result from the lack of sophisticated savings
channels. Hence, the investment depends on the individual's abilities on self savings, where
the investment is considered as major motivating vehicle for economic activity due to its
direct correlation with the capital accumulation process that increases the productivity
capacity for the national economy and creating job opportunities and achieving economic
development. Subsequently, the importance of the investment comes from effective role that
can be practiced on the national product. The present paper aims at explaining the impact of
influential factors on the investment function in the Sudan and then formulating a measuring
model for it. It is assumed that there is a causal relationship between investment and
influential factors. The results of the empirical analysis show that there is a positive
relationship between investment and Gross Domestic Products (GDP). However, there is a
negative relationship between inflation rate and finance cost on investment. It is concluded
that there is no significant effect from the inflation rate and finance cost while there is
existence of other fixed variables on investment. The conclusions are that more data are
required for further analyses with other variables with significant effect on investment such
as: imports, national income and government expenditure to attain a model that can be used
for investment anticipation in the coming years.

TITLE Risk Management: Impact Of The Macroeconomic Variables In The Stock Market
Sectors

SCHOLARS J. Aguirre

PUBLISHED IN 2011

This research enhances the importance of the risk management and decision analysis,
specifically addresses the impacts of macroeconomic variables in the stock market. The
theoretical framework covers the evolution of investment analysis tools from portfolio
management to recent financial theories applied to the Mexican Stock Market. In one of the
recent works, Francisco Lopez, a Mexican researcher discovered evidences of different
impacts of macroeconomic variables in the Mexican stock exchange market at a productive
sector level. The scope of this work is to expand and continue to exploring these findings.
The strategy is to apply statistical analysis over longitudinal data to identify and understand
such impacts to the Mexican stock market. Volatility and risk impacts in the market create a

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challenging environment to the decision makers; analysis models could be enhanced to
include these macroeconomic variables and assess impacts on specific productive sectors; the
application of this knowledge will provide direct benefits to the market, the productive
sectors and to the economy participants.

TITLE Stock market movement and macroeconomic influences: evidence from Saudi Arabia

SCHOLARS Emmanuel Okey Ntui

PUBLISHED IN 2012

This paper examines the dynamic relationship between stock price-movement and selected
macroeconomic variables of Saudi Arabia by adopting the cointegration methodology. The
monthly data on the Tadawul all-share price index, consumer price index, net foreign direct
investment and deposit (discount) rates from January 2000 to December 2011 are used for
this empirical investigation. Specifically, this paper focuses on the analysis of the long-run
equilibrium and short-run multivariate causality between these variables and forecast stock
market movement. An accurate estimation of the relationship between the stock market
behaviour and economic variables as well as the forecast stock movement enables both local
and global investors to make effective investment decisions. Similarly, for the policy makers,
a precise prediction of this type of relationship and forecast movement of stock prices may
help government monetary agencies and other institutions in designing policies to attract
more capital inflows into an emerging economy of Saudi Arabia’s capital market.

TITLE The Effect of Macroeconomic Variables on Stock Prices: A Conceptual Framework

of the Arbitrage Pricing Theory

SCHOLARS Shivangi Singh, Dhiren Jotwani

PUBLISHED IN 2013

The relationship between fundamental macroeconomic variables of the economy and stock
markets is an essential one. It affects the perspective of monetary and fiscal policy decisions,
portfolio management and economic development. It has been studied that macroeconomic
variables can influence investors' investment decisions. Over the world, many researchers
have investigated the relationships between stock market prices and various macroeconomic

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variables. The focus of the current paper is to investigate whether the share price index can be
considered as a reflection of economic activities in India. This study investigates the impact
of five selected macroeconomic variables on Stock Market Liquidity of S&P CNX Nifty. As a
result of this analysis, a simple model of the influence of macroeconomic fundamentals on
the stock market index has been suggested. For better stock market performance, policy
makers should put in place measures that will ensure a stable macroeconomic environment.

TITLE Factors Influencing Investors’ Decisions in Stock Market Investment in Bangladesh

[A Study on Khulna City]

SCHOLARS Fatima Khan, Farhana Afrin, M. A. Rahman

PUBLISHED IN 2015

This study investigates the factors that have influenced the share investment decisions of a
sample of 270 investors in Khulna City. It is motivated by the observed significant
investment in shares in DSE and CSE enlisted companies in recent years as well as the need
to understand the behavioural aspects of the investors influenced by some socio-economic,
cultural and psychological factors. The results obtained show that the examples of people
attaining financial security through share investment have the maximum level of influence
over the investors. Market factors, hedging factors and economic factors have greater
influence on investing decision making. This result also shows that uses of corporate
annualreport indicating financial ratios also influence investors’ decision making in share
market

TITLE Macroeconomic Factors and Foreign Portfolio Investment Volatility: A Case of South
Asian Countries

SCHOLARS Yahya Waqas, S. H. Hashmi, M. Nazir

PUBLISHED IN 2015

Macroeconomic factors play a pivotal role in attracting foreign investment in the country.
This unique study investigates the relationship between macroeconomic factors and foreign
portfolio investment volatility in South Asian countries. The monthly data is collected for the
period ranging from 2000 to 2012 for four Asian countries i.e. China, India, Pakistan and Sri

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Lanka because monthly data is ideal for measuring portfolio investment volatility. For
measuring volatility in foreign portfolio investment, GARCH (1, 1) is used because shocks
are responded quickly by this model. The results reveal that there exists significant
relationship between macroeconomic factors and foreign portfolio investment volatility.
Thus, less volatility in international portfolio flows is associated with high interest rate,
currency depreciation, foreign direct investment, lower inflation, and higher GDP growth rate
of the host country. Thus findings of this study suggest that foreign portfolio investors focus
on stable macroeconomic environment of country.

TITLE Impact of Macroeconomic Variables on Capital Structure Choice: A Case of Textile

Industry of Pakistan

SCHOLARS Z. Rehman

PUBLISHED IN 2016

The financing decision of a firm is influenced by both internal (firm specific) and external
(macroeconomic) factors. However, most of the empirical investigations have focus on
internal factors whereas the impact of macroeconomic variables on capital structure decisions
is somewhat under researched particularly in the context of developing countries. The aim of
the study is to analyse the impact of macroeconomic variables on the capital structure
decisions of all listed textile firms in Pakistan for the period 2004-2013. Panel data regression
(fixed effects model) was used to estimate the effect of macroeconomic variables on capital
structure. The findings of the study reveal that public debt, exchange rates and interest rates
are negatively related whereas corporate taxes, stock market development, inflation rate and
GDP growth rate are positively related with economic leverage. Moreover, the relationship of
corporate taxes, stock market development and exchange rates is significant with the
economic leverage.

TITLE Stock Market Fluctuations and Macroeconomic Variables

SCHOLARS M. Mohammadi

PUBLISHED IN 2016

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The importance of the role of capital markets in resource allocation, evaluation of investment
projects and the market boom is completely undeniable. An efficient capital market can cause
to allocate resources and direction of desirable capital, investment in the economy and led to
the flourishing of the economy. Issue of examining the impact of macroeconomic variables
on stock markets is a topic of interest to academics and investors. In general, it is believed
that stock prices are determined by some macroeconomic variables such as inflation,
exchange rates, gross domestic product and liquidity.

TITLE Research Paper on Impact of Macroeconomic Variables on Mutual Funds in India

SCHOLARS Kavita, J. Pasricha

PUBLISHED IN 2017

Any investment decision necessitates the prior evaluation of risk and reward attributes
associated with investing in a particular security or portfolio of securities. With the plethora
of schemes to choose from and increasing awareness amongst the general public, mutual
funds have been emerging as a desired investment option in comparison to other investment
avenues. However, before making an investment decision, the investor has to examine the
various macroeconomic factors. There are numerous variables at the economy, industry and
the company level which have an influence on the investment choices of the investors. In this
context, the present study attempts to ascertain the macroeconomic factors which have an
impact on the mutual funds market. The association between the Mutual funds market and the
macroeconomic variables has been analysed using Regression model. Further, the Existence
of causal relationship has been analysed using the Granger Causality test. It is apparent from
the study that the Real macroeconomic variables considered for the analysis do not have a
significant influence on the Mutual funds market and were not found to be reliable to even
predict the market movements.

TITLE The Impact of Macroeconomic Variables on Stock Prices: A Case Study of Karachi
Stock Exchange

SCHOLARS J. Khan, I. Khan

PUBLISHED IN 2018

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Investment decisions are highly influenced by macroeconomic variables as changes in
macroeconomic variables effect stock markets differently according to the country economic
conditions and government policies. The study contributes by determining the effect of
various macroeconomic variables on stock prices of Pakistan by analysing the monthly data
from May 2000-August 2016. As all the variables are stationary at first difference thus ideal
ARDL approach of bound testing is applied to check the short term and long-term co-
integration of the macroeconomic variables on stock prices. The findings suggest that stock
prices of Karachi Stock Exchange in long term are significantly affected by money supply,
exchange rate, and interest rate. In short term all the variables are insignificant except
exchange rate which is negatively co-integrated with stock prices. The central bank shall be
vigilant while changing the money supply in market because too much increase in money
supply could affect investment as well as stock market. The regulator should keep interest
rate relatively low to encourage economic activities, improve external economic environment
through rule based exchange rate policy and avoid discretionary measures.

TITLE Evaluating the Impact of Macroeconomic Variable on Indian Stock Market

SCHOLARS Sarika Keswani, Bharti Wadhwa

PUBLISED IN 2019

The prices of shares and other financial assets have constantly had a significant influence in
the improvement and advancement of financial activities, and this has turned out to be clear
ever. Macroeconomic factors show the prosperity of any economic system and determine the
investment future. Macroeconomic factors influence pricing in any economy.
Macroeconomic vulnerability influences stock and commodity market, which altogether
decides price instability. The securities exchange is a basic stage in the money related
arrangement of our nation as it assumes a major role in directing shortage area investment
funds to the surplus part. The research examined the impact of certain macroeconomic factors
(disposable revenues, interest rates, govt. policies, inflation and exchange rates) on the results
of securities market performance in the National and Bombay stock exchanges. Thusly, the
causal connection between the securities exchanges returns and chose macroeconomic factors
in the NSE and BSE has been resolved in the investigation. The examination utilized the
ADF, correlation, multiple regression and granger causality test for analyzing the association
between the chose factors The study period was assessed by monthly data for 2006-2016. The

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findings showed that in the first difference the variables are stationary. There is a strong
relationship exists between disposable income, government policies, the exchange rate and
share price. This means that if these variables change, the stock prices of NSE and BSE will
be affected. Furthermore, there is an unfavorable connection in the NSE and BSE between
interest rate and inflation rate and share price, which means a shift in inflation and interest
rate that will not have a strong impact on stock prices and will be in an adverse direction. In
addition, a multiple regression that showed these variables was used to check the effect of
selected macroeconomic factors on Indian stock prices. They have an influence on the NSE
and BSE share prices.

TITLE Impact of Macro - Economic Factors on Indian Stock Market- A Research of BSE
Sectoral Indices

SCHOLARS R. Reddy, R. Nayak, S. Nagendra, Ashwith

PUBLISHED IN 2019

Macro-Economic factors plays a major role in decision making. Evaluation of

macroeconomic environment is required to examine the behaviour of stock prices, which
further influences the investor’s investment behaviour. Even though some macro-economic
factors are not directly related to the company or industry, but those factors has an impact on
stock prices, further economic activity in the domestic and global level has its own impact on
stock market. When economy of the country grows hastily, it leads to faster growth in the
industry and vice versa. Financial market plays a central role in the performance of financial
system of an economy. Stock market is a market where securities of listed companies are
exchanged between different investors, it is very responsive market which, gives a stage to
investors to invest their money in various securities. Market indices are the tools to measure
the performance of various securities of stock market and Investors make use of those market
indices to analyse performance of those industries in which, they prefer to invest. This study
takes into account six macro-economic factors (Crude oil Price, Gold Price, Silver Price,
Exchange Rate, Inflation and Interest Rate) to study & analyse the impact of these variables
on selected sectoral indices at BSE, SENSEX, S&P BSE BANKEX, S&P BSE Oil and Gas,
S&P BSE Capital Goods, S&P BSE Consumer Durables, S&P BSE Reality, S&P BSE PSU
and S&P BSE Power. The study shows that gold price, exchange rate, consumer price index
and interest rate are positively correlated with four indices but crude oil price and silver price

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have positively correlated with 3 indices. So from the result it is clear that investor need to
take of all the variables for their investment decision and the investment banker also take care
of these indicators before giving suggestion to their clients

TITLE Influences of Macroeconomic Variables on Stock Market in China: An Empirical

Analysis

SCHOLARS Peng Huang, Shen Chen, Wan Wei, Ahmed Elkassabgi

PUBLISHED IN 2019

This paper investigates the influences of macroeconomic variables on the stock market in
China. We use Granger causality tests, impulse response functions, and variance
decompositions to examine how fundamental macroeconomic variables, such as output
proxied by electricity generation, inflation, money supply, and short-term interest rate affect
the Shanghai Stock Exchange Composite Index. Our estimation results indicate that variables
that measure macroeconomic activity, such as output growth and inflation, have no
statistically significant impact on stock returns. Moreover, the stock returns do not respond to
changes of monetary policy variables such as money supply and short-term interbank offered
rate. This implies that monetary policy does not exert significant influences on stock returns.
In sum, the performance of the China stock market does not reflect macroeconomic
fundamentals.

TITLE Macroeconomic Factors as a Predictor of Stock Market: Empirical Evidences from

India, U.S. and U.K.

International journal of recent technology and engineering

PUBLISHED IN 2019

The study investigated the impact of Macroeconomic variables such as: Gross Domestic
Product (GDP), The Index of Industrial Production (IIP), Consumer Price Index (CPI),
Foreign-exchange reserves (also called forex reserves or FX reserves), International Crude
Price (CP) on selected stock market, namely Indian Stock Market (S&P BSE SENSEX (BSE
30) index, S&P CNX Nifty index (NIFTY 50), London Stock Exchange (Financial Times
Stock Exchange 100 Index (FTSE 100) and New York Stock Exchange Dow Jones Industrial

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Average (Dow 30). The data sets of all variables have been considered from April, 2001 to
March, 2018 on a monthly basis. The study reveals long run relationship among the variables
and the results of Granger Causality test reveals unidirectional, bilateral relation (Feedback)
and exogeneity (Independence) among the variables.

TITLE The Impact of Macroeconomic Factors on Stock Market: An Evidence from China
and Pakistan

SCHOLARS Isbat Alam, M. Mohsin, Khalid Latif, M. Z. Rehman

PUBLISHED IN 2020

Silk Road is an ancient strategy of economic and trade routes development networks between
emerging and developing economies (China & Pakistan). The main purpose of this research
is to empirical inspect the association that exists among the China stock exchange (SSE),
Pakistan Stock Exchange (KSE-100) with macroeconomic variables (Gross Domestic
Product, Balance of Trade, Foreign Direct Investments, Lending interest rate, and Money
Supply). The annual time series data from 1995 to 2019 used to find out the results.
Macroeconomic variables have an essential role in any changes in every economy. Any
unexpected variations amongst these variables influence the economy in several ways.
Multiple regression techniques were analyzed and examine for the significance of data to
approximate the probable impacts of variables on stock market prices. Breusch Godfrey
Serial Correlation with heteroskedasticity assessment is utilized to investigate the correctness
as well as residual normality of series data. The finding of this study exposed that GDP is
negative significant 10% with SSE and 1% at level with KSE, FDI is insignificant with SSE.
negative significant 10% at level with KSE and the result of BOT shows positive significant
5% at level with SSE while insignificant with KSE, M2 is significant 5% at level with SSE
but insignificant with KSE and LI are shown statistically significant 1% at level with SSE
While positive significant 10% with KSE. It is determined that it is significant and an
insignificant relationship among the variables with both stock market returns. The financial
analyst, policymaker appreciate these findings, investors, shareholder, stock exchange
editors, security exchange supervisors as well as for the Government.

TITLE Macroeconomic Variables Influence on Stock Market Performance

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SCHOLARS Norazidah Shamsudin, Mohd Izuan Rosmi, Suhana Mohamed

PUBLISHED IN 2021

Investors should consider stock market performance when making an investment decision.
Both economic and non-economic factors influence the stock market's performance. Previous
research, primarily from developed markets, has revealed that macroeconomic factors
significantly impact stock returns. Economic forces are used in this paper to investigate the
significant relationship between selected macroeconomic variables, the Malaysian stock
return index for the financial sector, and the Bursa Malaysia Finance Services Index. The
macroeconomic variables examined are inflation (INF), money supply (M.S.) and the real
effective exchange rate (REER). This study's sample consists of 164 timeseries observations.
The observations are annual secondary data obtained from the World Bank, Index Mundi, and
the Malaysian Bureau of Statistics from January 1979 to December 2019. Several regression
analyses and econometric tests were performed with the interactive software package E-
Views 11. The findings of this research paper provide an initial overview and can serve as a
valuable foundation for investors' and policymakers' respective investment strategies and
policies.

TITLE Macroeconomic effect on stock price: Evidence from Indonesia

SCHOLARS Andung Luwihono, B. Suherman, Darmawanta Sembiring, Syahrir Rasyid,

Nawang Kalbuana, R. Saputro, B. Prasetyo, Taryana Taryana, Yayuk Suprihartini, Pribadi
Asih, Zainal Mahfud, R. Rusdiyanto

PUBLISHED IN 2021

Investment decision making by Engineering Managers needs to take into account

microeconomic and macroeconomic factors in a country. The role of Engineering Managers
in making decisions is crucial and very important. Technical Managers need to consider
macro-economic effects such as the US dollar exchange rate against the rupiah, the interest
rate set by Bank Indonesia, inflation, especially during the preparation of the Budget Plan
(RAB). This research is to analyze the macroeconomic effect on stock prices, to prove the

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hypothesis, a quantitative approach is used. Macroeconomics are assessed through the US
dollar exchange rate, and financial statements data of banking companies.

TITLE Factors Affecting Investment Activity

SCHOLAR Anastasiya M. Gladkih

PUBLISHED IN 2021

The article examines factors that affect the investment activity, provides the interest
independence rate and return rate graph, as well as analyzes how foreign investment growth
occurs. An important component of the economy is the investment process. Macroeconomic
factors are such conditions that are directly related to the economy at the national level and
capture a large part of its population. When the investment plan is being developed at the
enterprise, the principles below should be followed: accounting of the risks and inflation;
economic investments justification; reliable and cheaper financing methods. Summarizing,
we can state that all these factors as have a common goal to influence the investment activity,
and this already implies an impact on the entire country economy. In general, we can
conclude that all these factors as a whole have a common goal that is to influence investment
activity, and this already implies an impact on the entire country economy.

TITLE Nexus between Macroeconomic Factors and Corporate Investment: Empirical

Evidence from GCC Markets

SCHOLARS Umer Farooq, M. Tabash, Basem Hamouri, Linda Nalini Daniel, S. Safi

PUBLISHED IN 2023

The study aims to explore the role of various macroeconomic factors in determining
corporate investment. Using firm-level data of six Gulf Cooperation Council (GCC) region
countries for a 14 year period (2007–2020), the current study establishes the empirical
analysis by employing the system generalized method of moments (GMM) technique. The
empirical results reveal the negative impact of foreign direct investment whilst the positive

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impact of economic growth, financial development, and inflation rate on corporate
investment decisions. Due to high market competition, foreign direct investment can hamper
the growth of domestic industrial sectors. However, economic growth, financial development,
and inflation rate positively drive the investment by enhancing the demand for industrial
products, cheap financing, and price appreciation effect on production enrichment
respectively. Based on results, it is suggested that corporate managers should consider the
economic sensitivity of investment. The novelty of study can be listed, as the current analysis
presents the dynamic role of various economic factors in determining the corporate
investment decisions specifically in GCC region countries.

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