The Effect of Macroeconomic Variables on the Performance of the Stock Market

Interaction with elements of the market economic system is one of the important issues in the capital markets. The impact of macroeconomic variables on the performance of the stock market has been considered as an important issue. In general, economic variables have two parts, micro and macro. Micro variables in company and industry level, includes the composition and structure of the company`s assets and liabilities, financial ratios and profit margins of firms and so on. Macroeconomic variables includes interest rate, exchange rates, oil prices, industrial production index and so on, are not related to specific company or industry and related to total market. According with the significant impact of macroeconomic variables in the stock market, financial analysts trying to identify the most important variables affecting market performance so that they can provide better predictions. This research intends to investigate the impact of macroeconomic variables such as exchange rates, interest rates, inflation, money supply, the industrial production index and world oil prices on the stock market index, market capitalization and market turnover. Therefore, monthly data collect from September 1998 (Mehr 1377) to September 2014 (Shahriver 1393) and using Granger Causality, Johansen Co-integration, Correlation and Regression test and Impulse Response test for data analysis. The regression analysis show, the exchange rate bank and current exchange rate, interest rates and oil prices positively correlated with the stock market index and exchange rate bank, industrial production index and inflation and money supply, a negative correlation relationship with the market capitalization. Also, the bank exchange rate, inflation and industrial production index is positively correlated with stock market trading volume. According to Granger causality test, one-way causal relationship between macroeconomic variables to the market capitalization and market turnover, there is no causal relationship with stock market index.