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 the
relationship between the stock market index and selected macroeconomic variables (interest
rate, exchange rate, and industrial production index) using panel data analysis from January
2012 to December 2022. Applying the panel date regression techniques, the results show that
before the structural break period, the random effect model (REM) is appropriate for the
estimate model. The stock market index is significantly affected by the interest rate and
industrial production index, but the exchange rate is found to be insignificant. After structural
break, a fixed effect model (FEM) is appropriate where all significant and only the exchange
rate is found to be negative. The findings of this paper also conclude that the industrial
production index has a greater effect on both the model before and after a break and is positively
related to the stock market index. In this case, there is a need for amendments in monetary
policy to ensure that the industrial production index is set at a high level, since the results would
be able to boost the stock market in the selected ASEAN-5 countries.