Essays on Prices of the Stock Market and the Respective Macroeconomic Variables Coursework

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The paper "Prices of the Stock Market and the Respective Macroeconomic Variables" is a perfect example of marketing coursework.   For the last decade, capital flows to various stock markets have increased significantly due to the liberalization of different economies and the withdrawal on foreign capital controls. The gradual growth in economies has as a result accumulated funds from developed economies to ensure diversified benefits or higher returns. These capital forms are called foreign portfolio investment (FPI) and foreign direct investment (FDI). The FDI is long-term while the FPI appears to be short term and its benefits to various economies are doubtful.

Of importance to the question is the Stock market which is the center of all transactions. The stock market operations incorporate buyers and sellers of various securities working towards meeting the specified price. In this case, therefore, the stock market plays an important role in the mobilization of funds for emerging and the developing nations leading to the industrial and commercial growth of various countries. Investors and economic researchers have often focused on the stock markets prices and the fundamental macroeconomic in different economies to provide attractive investment opportunities for foreign investors and other investment organizations within a country. Market return response in macroeconomic variables cannot be determined earlier due to the domestic and global variations.

Subsequently, these global variables are also more relevant as compared to the domestic variables when explaining returns across different economic markets. These markets are inherently interrelated with various domestic variables, poor policy implementation and the weak macroeconomic environment which has made it impossible even for a single emerging market to be transmitted to the global marketplace.

An obvious example is after weak macroeconomic fundamentals and leverage banks in the emerging economies; their economies experienced increased market volatility and a reduction in market valuations. As a result of these factors, therefore, the fluctuations, exchange rates, money supply and industrial production factors in macroeconomics have a significant influence on stock market prices through their effects on the future prices and the cash flow rates which are also discounted. In this case, therefore, there exists a correlation between the prices in the stock market and the respective macroeconomic variables that can be assessed and investigated. Prices of the Stock market and the respective macroeconomic variables Various research conducted indicates that about 30-35% of the variation in stock market prices are as a result of the economic factors such as money supply, interest rates, fiscal deficit, industrial production among other factors.

The market stock variation depends on the behavior of these individual factors. The market index, for example, can be influenced by the macroeconomic variables such as interest rates, monetary supply, inflation in the country, economic growth, Industrial Production, Gross Domestic Product (GDP) and Exchange Rate.

Among these factors, the exchange rate has been shown to influence the stock market the most due to the trade effects. A reduction in the domestic currencies which is part of the exchange rate leads to an increase in the volume of exports. However, provided the demand for export remains elastic, there will be an increase in cash flows for the domestic organizations and hence an increase in stock market prices.

Bibliography

Bodie, Z., Kane, A., & Marcus, A. J. (2013). Essentials of investments. New York, NY, McGraw-Hill/Irwin.

Brealey, R. A., Myers, S. C., & Allen, F. (2006). Principles of corporate finance. New York, NY, McGraw-Hill/Irwin.

Jones, C. P. (2006). Investments: analysis and management. Hoboken, NJ, John Wiley & Sons, Inc.

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