Determinants of stock market index movements: Evidence from New Zealand stock market

Abstract

This study examines the impact of a selected macroeconomic variables on the New Zealand stock market(S&P/NZX 50) index. We use exchange rate, interest rate, inflation rate and foreign stock market index (S&P 500 index) to evaluate their influence on the New Zealand stock market (S&P/NZX 50) index. Daily data from January 2014 to September 2016 are evaluated. Unit root tests, cointegration tests, vector error correction model (VECM) and Granger causality test are employed to examine both long run and short run dynamic relationship between these variables. The study finds that there is no statistically significant long run causality from inflation rate, exchange rate, interest rate and S&P 500 index on the New Zealand stock market index. However, S&P 500 index has a strong significant short run Granger causality to the New Zealand stock market index.