Exploring the dynamic relationship between selected Macroeconomic Variables and the Saudi Stock Market via VECM — Ruqayya Aljifri (Economics PhD seminar)

Abstract:

This study investigates the long-run relationships between the Saudi stock price index (TASI) and four macroeconomic variables; CPI (as a proxy of inflation), Money Supply (M2), IIP as a measure of GDP and S&P 500 as a measure of international stock market effects over the period 1988-2018. We observe that, in the long run, CPI and S&P 500 have a negative impact on the Saudi Price Index while M2 and IIP have a positive impact on the Saudi Price Index. The Johansen cointegration test and a vector error correction (VEC) model clarify that TASI is cointegrated with CPI, Money Supply (M2), IIP and S&P 500, which indicates the existence of the long-run equilibrium relationship among the variables included in the current study. In the long run, the four macroeconomic variables in the system Granger-cause the Saudi Stock Price Index (TASI).