The influence of macroeconomic variables on emerging markets stock indices, pre and post the 2008 financial crisis

Abstract

This study aims to determine the influence of macroeconomic variables on the equity indices of emerging countries. This study will be made in the context of the last financial crisis of 2008. The study will also establish whether the crisis had an impact on the influence these variables have on the indices. In one form or another, these indices are certainly influenced by what happens in the local and foreign economic environment. The last financial crisis without doubt had an effect on all countries including emerging economies. This can be attributed to these economies’ dependence on developed countries like the US. Some studies suggest that before the crisis emerging markets had decoupled from developed markets. However the last crisis put this theory in doubt. Recent research suggests that these economies had recoupled to these developed markets during the crisis . This study hopes to give a better insight on the dependence of the ‘BRICS’ countries on developed economies like that of the US. In total ten linear regression models were created, two for each country. The independent variables consisted of monthly returns of each index. The dependant variables ranged from local economic variables to US macroeconomic variables. Due to limitations, the results give inconsistent results, however overall the study seem to suggest that emerging markets are influenced by US macroeconomic variables even after the crisis .