The Influence of Macroeconomic Factors on Stock Market Returns in E-7 Economies

Abstract

The emerging economies have expanded rapidly and played a vital role in the global financial system over the past 2 decades. Although emerging countries have made efforts to stabilise their markets, they are still considered unstable and unpredictable, unlike the established stock markets of developed countries. The purpose of the study is to investigate the impact of macroeconomic factors and stock market returns in E7 economies using annual data from 2000 to 2023. E7 economies are the world's top emerging economies: Brazil, Russia, India, China, Mexico, Indonesia, and Turkey. The independent variables are GDP, inflation, interest rate, unemployment rate, and exchange rate, while FDI, MS, and Political instability are used as control variables. Using panel data analysis, this study employed the FEM and REM to investigate the significant influence of macro-economic variables on stock returns and the Hausman test was used to select the most appropriate model. The findings of this study indicate that GP, inflation, and interest rates have significant influence on stock returns; unemployment and political instability have negative and significant influences, while exchange rates, FDI, and money supply have insignificant effects on stock returns in E7 economies. The study's findings highlight the importance of stable macroeconomic factors and political stability for stock market growth and offer valuable insights for investors, policymakers, and economists seeking to enhance market resilience in emerging economies.