Relationship Between Stock Market and Macroeconomic Variables Using Panel Data with Structural Breaks: ASEAN-5 Countries

Abstract

This study looks at the ASEAN-5 countries and investigates how structural changes affect therelationship between the stock market index and selected macroeconomic variables (interestrate, exchange rate, and industrial production index) using panel data analysis from January2012 to December 2022. Applying the panel date regression techniques, the results show thatbefore the structural break period, the random effect model (REM) is appropriate for theestimate model. The stock market index is significantly affected by the interest rate andindustrial production index, but the exchange rate is found to be insignificant. After structuralbreak, a fixed effect model (FEM) is appropriate where all significant and only the exchangerate is found to be negative. The findings of this paper also conclude that the industrialproduction index has a greater effect on both the model before and after a break and is positivelyrelated to the stock market index. In this case, there is a need for amendments in monetarypolicy to ensure that the industrial production index is set at a high level, since the results wouldbe able to boost the stock market in the selected ASEAN-5 countries.