Stock markets are a vital part of a country’s economy and of businesses in the economy, and economic policy decisions by the government impact stock markets greatly. It is therefore important to know how different stock categories are impacted by economic decisions of the governments and the central banks. While several studies exist that have explained the impact of economic indicators on stock prices for large cap stocks, there are none that differentiate between the combined impact of all the major economic indicators on different stock categories – large cap and small cap stocks. This difference is important to understand as it impacts not only businesses and investors but also governments in their policy formulation. This paper, therefore, aims to study whether different economic indicators influence large and small cap stocks by looking to answer the question: The key research question explored the relationship between economic indicators and stock prices small cap and as large cap companies in the US using available data for the last 10 years (from Jan 2001 to June 2011) based on 9 leading economic indicators and on two stock indices (one each for large and small cap stocks). The economic indicators were the independent variables while the stock price was the dependent variable in the multiple regression models developed for the two stock indices. Using public records, data were collected from publicly available financial statements of corporations. The proposed relationships were tested through regression analyses. Results indicated that the two stock categories are influenced by a different set of economic indicators except the Consumer Price Index, the Industrial Production Index (IPI), and the Consumer Confidence Index. The implication for economic change includes governments’ awareness of the need to monitor these factors as their Key Performance Indicators for measuring the impact and success of their past and future economic policy decisions on businesses. Table of Content Chapter 1Introduction 6 1.1Background and Context 6 1.2Objectives 6 1.3Achievements 7 1.4Overview of Dissertation 8 1.5Problem Description 8 Chapter 2Literature Review 10 Chapter 3Research Method 19 Chapter 4Data Analysis and Results 26 4.1Test of Variables 26 4.2Regression Analyses for the stock indices 26 4.2.1Regression analysis: S&P 500 27 4.2.2Regression analysis: S&P SmallCap 600 34 4.2.3Check for the predictability of regression models 43 Chapter 5Discussion, Conclusions, and Recommendations 46 5.1Summary 46 5.2Evaluation 49 5.3Future Work 51 References 52 Appendix A: Normal distribution of dependent variables 55 Appendix B: Linearity of relation between economic indicators & S&P 500 56 Appendix C: Linearity of relation between economic indicators & S&P SmallCap 600 57 Appendix D: Clarification of concepts and terms 58 Qualifications & Experience 62 Abstract 1 Table of Contents 2 Chapter 1 Introduction 5 Chapter 2 Literature Review 9 Chapter 3 Research Method 18 Chapter 4 Data Analysis and Results 25 Chapter 5 Discussion, Conclusions, and Recommendations 43 References 49 Appendix A: Normal distribution of dependent variables 51 Appendix B: Linearity of relation between economic indicators & S&P 500 52 Appendix C: Linearity of relation between economic indicators & S&P SmallCap 600 53 Appendix D: Clarification of concepts and terms 54 Qualifications & Experience 58 List of Tables Table 1 9 Table 2 27 Table 3 28 Table 4 29 Table 5 29 Table 6 30 Table 7 34 Table 8 36 Table 9 36 Table 10 37 Table 11 38 Table 12 39 Table 13 39 Table 14 46 List of Figures Figure 1: Histogram of regression model residuals for S&P 500 32 Figure 2: Variance of residuals for S&P 500 regression model 32 Figure 3: Scatter plot of residuals for regression model for S&P
This paper aims to study whether different economic indicators influence large and small cap stocks. The key research question explored the relationship between economic indicators and stock prices small cap and as large cap companies in the US using available data for the last 10 years based on 9 leading economic indicators and on two stock indices.nts and the central banks…
It is not uncommon to see immediate swings in the stock markets following the release of economic data for the country. Quite naturally, correctly anticipating the economic indicators and being on the “right” side of the market can prove to be extremely profitable for an investor.
The authors Thorbecke (Resident Scholar at The Jerome Levy Economics Institute of Bard College in 1995) and Coppock (Professor, Department of Economics, Hillsdale College in 1995) conducted the study with the aim to verifying what percentage of the stock market variation can be explained by macroeconomic factors and monetary policy.
While several studies exist that have explained the impact of economic indicators on stock prices for large cap stocks, there are none that differentiate between the combined impact of all the major economic indicators on different stock categories – large cap and small cap stocks.
Economic indicators are useful only when the researcher has the idea to interpret. There has been strong correlation between economic growth and profits of organizations. Data on economic indicators Unemployment rate: The following provides the data on unemployment rate of United States.
Intermediate goods do not have their utility and demand for their own sake rather they are demanded for the production of final goods. For instance if raw cotton is used for producing yarn, raw cotton is the intermediate good then, but if yarn is used for producing cloth, then yarn becomes the intermediate good.
They are structural unemployment, frictional unemployment and cyclical or seasonal unemployment. Structural unemployment arises out of the change in demand of technology and taste in the industry. For instance, the typewriter industry has no demand now because of the emergence of computers.
However, this paper evaluates validity of the statement as to whether and how stock markets can actually contribute to economic growth of a country, and that this can be achieved up to what extent. Empirical studies do suggest that a well developed stock market can considerably support economic growth in the long run through faster capital accumulation, improved resources allocation and exploiting the prevalence of positive sentiment across the country.
The petroleum and energy is the target studied in his report, thus it is imperative to select economic indicators that can help an investor evaluate how business related to this industry would perform in a particular marketplace. In order to better understand the
Business cycle fluctuations are often explained against the model of Keynesian economy where the economy or an industry reaches short term equilibrium in a state of less than or above full employment status. (Sullivan and Sheffrin, 2003) When an economy or a industry