An Empirical Analysis of the Relationship Between Stock Market Indices and Macroeconomic Variables: Evidence from Jordan

Abstract

The purpose of this study is to investigate the relationship between stock market index and macroeconomic variables in Jordan.The unit root tests and the Granger causality test have been applied between the Amman Stock Exchange Index (ASEI) and the macroeconomic variables, Discount rate (interest), Money Supply, Index of Industrial production (IIP), Foreign Exchange Reserve (FR), and Consumer Price Index (CPI) using monthly data for the period from 2002 to 2015. The findings show the ASE Index doesn’t granger cause any of the variables except the interest rate. And shows that none of the macroeconomic variables granger causes ASEI except the CPI.

Economists, policy makers and financial investors can use the findings to help them in exploring whether the movement of stock market indices is the result of some related macroeconomic variables or it is one of the causes of movement in those variables of the Jordanian economy.

Keywords: Stock Index, Macroeconomic Variables, Granger Causality, Jordan.