Impact of Financial Crisis on Relationshipbetween Aggregate Stock Returns andMacroeconomic Factors in BRICS Stock Markets

Abstract

The relationship between Aggregate Stock Returns and prominent Macroeconomic Factors (i.e., GDP, Inflation, Interest Rate, Exchange Rate, Money Supply and Oil Prices) has been examined for BRICS economies
for the period from 1995: Q1 to 2014: Q4 using quarterly data. To assess the impact of Global Financial Crisis, this relationship is further scrutinized during two sub periods viz., a Pre Crisis period (1995:Q1 to 2007:Q2) and
a Post Crisis Period (2007:Q3 to 2014:Q4). ADF Unit Root Test, Correlation Analysis and Multivariate Regression Model have been applied.
We find strong positive contemporaneous relationship of BRICS stock returns with GDP growth rates, changes in Money Supply and changes in oil. Stock returns are negatively correlated with inflation rate, changes in
interest rate and changes in exchange rate. Also, the correlations have increased substantially in the post crisis period indicating the impact of crisis in deepening the contemporaneous relationship. Multivariate Regression results indicate that various Macroeconomic Factors significantly explain and predict Aggregate Stock Returns in different BRICS markets. These results were mostly consistent in pre and post crisis
periods indicating no major impact of crisis.These findings besides expanding the existing literature and knowledge base on the topic will have pertinent uses and implications for regulators, policy makers, investors and researchers