Empirical Analyses of Determinants of D.J.S.I.US Mean Returns

Authors: Nikolaos Sariannidis, Grigoris Giannarakis, Nikolaos Litinas, Nikos Kartalis

Abstract:

This study investigates the relationship between 10 year bond value, Yen/U.S dollar exchange rate, non-farm payrolls (all employs) and crude oil to U.S. Dow Jones Sustainability Index. A GARCH model is used to test these relationships for the period January 1st 1999 to January 31st 2008 using monthly data. Results show that an increase of the 10 year bond and non farm payrolls (all employs) lead to an increase of the D.J.S.I returns. On the contrary the volatility of the Yen/U.S dollar exchange rates as well as the increase of crude oil returns has negative effects on the U.S D.J.S.I returns. This study aims at assisting investors to understand the influences certain macroeconomic indicators have on the companies- stock returns as reported by the D.J.S.I.

Keywords: Bond value, Corporate Social Responsibility, Crudeoil, D.J.S.I United States, Exchange rate, GARCH, Non-farmpayrolls.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1060018

References:

[1] A. A. El-Masry, "The exchange rate exposure of UK nonfinancial companies: industry level analysis," Managerial Finance, vol. 32, pp. 115-36, 2006.
[2] A. Azapagic, "Systems approach to corporate sustainability: A general management framework," Process Safety & Environmental Protection, vol. 81, pp. 303-16, 2003.
[3] A. Carroll, "The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders," Business Horizons, Vol. 34, pp. 39-48, 1991.
[4] A. Humpe, and P. Macmillan, "Can Macroeconomic Variables Explain Long Term Stock Market Movements? A Comparison of the US and Japan," CDMA Working Paper No. 07/20, 2007. Available at SSRN: http://ssrn.com/abstract=1026219
[5] A. Nasseh, and J. Strauss, "Stock prices and domestic and international macroeconomic activity: a cointegration approach," The Quarterly Review of Economics and Finance, vol. 40, pp. 229-45, 2000.
[6] A. Samitas, and D. Kenourgios, "Macroeconomic Factors' Influence on 'New' European Countries' Stock Returns: The Case of Four Transition Economies," International Journal of Financial Services Management, vol. 2, pp. 34-49, 2007.
[7] C. C. Bautista, "Interest rate - exchange rate dynamics in the Philippines: a DCC analysis," Applied Economics Letters, vol. 10, pp. 107-11, 2003.
[8] C. Ciner, "Energy Shocks and Financial Markets: Nonlinear Linkages," Studies in Nonlinear Dynamics & Econometrics, vol. 5, pp. 203-12, 2001.
[9] C. Jones, and G. Kaul "Oil and the Stock Markets", Journal of Finance, vol. 51, pp. 463-91, 1996.
[10] C. Pilar, and S. Rafael, "Does derivatives trading destabilize the underlying assets? Evidence from the Spanish stock market," Applied Economics Letters, vol. 9, pp. 107-10, 2002.
[11] D. A Crowther, Social Critique of Corporate Reporting, Aldershot: Ashgate, UK, 2002.
[12] D. G. Dickinson, "Stock market integration and macroeconomic fundamentals: an empirical analysis," Applied Financial Economics, vol. 10, pp. 261-76, 2000.
[13] Dow Jones Sustainability Index (D.J.S.I). Available at: www.sustainability-index.com
[14] Dow Jones Sustainability North America Index - Dow Jones Sustainability United States Index, Guide Book, Version 3.1, January 2008. Available at: http://www.sustainabilityindex. com/djsi_pdf/publications/Guidebooks/ DJSI_NA_Guidebook_31.pdf
[15] E. Bartov, and G. M. Bodnar, "Firm valuation, earnings expectations and the exchange rate exposure effect," Journal of Finance, vol. 49, pp. 1755-85, 1994.
[16] E. Drimbetas, ╬Ø. Sariannidis, and N.Porfiris, "The effect of derivatives trading on volatility of the underlying asset: evidence from the Greek stock market," Applied Financial Economics, vol. 17, pp. 139-148, 2007.
[17] E. F. Fama, and G. W. Schwert, "Asset Returns and Inflation," Journal of Financial Economics, vol. 5, pp. 115-46, 1977.
[18] E. Fama, "Stock returns, Expected Returns, and Real Activity," Journal of Finance, vol. 45, pp. 1089-108, 1990.
[19] European Commission, Green Paper: Promoting a European framework for Corporate Social Responsibility, Brussels, 2001.
[20] Federal Reserve Bank of San Francisco "Two Measures of Employment: How Different Are They?", 2004. Available at: http://www.frbsf.org/publications/economics/letter/2004/el2004- 23.html
[21] H. Gulen, and S. Mayhew, "Stock index futures trading and volatility in international equity markets," The Journal of Futures Markets, vol. 20, pp. 661-85, 2000.
[22] H. R. Bowen, Social Responsibilities of the Businessman, Harper and Brothers, New York, 1953.
[23] I. A. Diallo, "Exchange rate volatility and investment: a panel data cointegration approach", 2007. Available at: http://mpra.ub.unimuenchen. de/5364/1/MPRA_paper_5364.pdf
[24] J. D. Hamilton, "Oil and the Macroeconomy," forthcoming in: S. Durlauf and L. Blume (eds.), The New Palgrave Dictionary of Economics, 2nd ed., London: Macmillan, 2005. Available at: http://dss.ucsd.edu/~jhamilto/JDH_palgrave_oil.pdf
[25] J. D. Hamilton, "What is an oil shock? ," Journal of Econometrics, Vol. 113, pp. 363-98, 2003.
[26] J. F. J. Vos, "Corporate social responsibility and the identification of stakeholders," Corporate Social Responsibility and Environmental Management, vol. 10, pp. 141-52, 2003.
[27] J. L. Kling, "Oil Price Shocks and Stock-Market Behavior," Journal of Portfolio Management, vol. 12, pp. 34-9, 1985.
[28] J. M. Griffin, and R. M. Stulz, "International competition and exchange rate shocks: a cross country industry analysis of stock returns," Review of Financial Studies, vol. 14, pp. 215-41, 2001.
[29] J. Rotemberg, and M. Woodford, "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, vol. 28, pp. 549-77, 1996.
[30] J. Shanken, and M. I. Weinstein, "Economic forces and the stock market revisited," Journal of Empirical Finance, vol. 13, pp. 129-44, 2006.
[31] K. Léon, "The Effects of Interest Rates Volatility on Stock Returns and Volatility: Evidence from Korea," International Research Journal of Finance and Economics, vol. 14, pp. 285-90, 2008.
[32] M. M. Boyer, and D. Filion, "Common and Fundamental Factors in Stock Returns of Canadian Oil and Gas Companies," Energy Economics, Vol. 29, pp. 428-53, 2007.
[33] M-S. Pan, and P. L. Hsueh, "Transmission of stock returns and volatility between U.S. and Japan: evidence from stock index future markets," Asia-Pacific Financial Markets, vol. 5, pp. 211-25, 1998.
[34] Dow Jones Sustainability Index US Components, (2008), available at: http://www.sustainabilityindex. com/djsi_protected/djsi_na/SAM_DJSIUS_Components.pdf
[35] N. Chen, R. Roll, and S. Ross, (1986), "Economic forces and the stock market-, Journal of Business, Vol. 59, pp. 383-403.
[36] N. F. Chen, "Financial investment opportunities and the macroeconomy," Journal of Finance, vol. 46, pp. 529-54, 1991.
[37] N. Günsel, and S. Çukur "The Effects of Macroeconomic Factors on the London Stock Returns: A Sectoral Approach", International Research Journal of Finance and Economics, Vol. 10, pp. 140-52, 2007.
[38] N. Joseph, "Modelling the impacts of interest rate and exchange rate changes on UK stock returns," Derivatives Use, Trading and Regulation, vol. 7, pp. 306-23, 2002.
[39] OECD, Corporate Responsibility: Private Initiatives and Public Goods, May, Paris, 2001.
[40] P. Bologna, and L. Cavallo, "Does the introduction of stock index futures effectively reduce stock market volatility? Is the ÔÇÿfuture effect- immediate? Evidence from the Italian stock exchange using GARCH," Applied Financial Economics, vol. 12, pp. 183-92, 2002.
[41] P. Jorion, "The exchange-rate exposure of US multinational," Journal of Business, vol. 63, pp. 331-45, 1990.
[42] P. Kotler, and N. Lee, Corporate Social Responsibility. Doing the Most Good for Your Company and Your Cause, John Wiley & Sons, Inc., Hoboken, NJ, 2005.
[43] P. Sadorsky, "Oil price shocks and stock market activity," Energy Economics, vol. 21, pp.449-69, 1999.
[44] R. Connolly, C. Stivers, and L. Sun, "Stock market uncertainty and the stock-bond return relation," Journal of Financial and Quantitative Analysis, vol. 40, pp. 161-94, 2005.
[45] R. Dornbusch, and S. Fischer, "Exchange Rates and Current Account," American Economic Review, vol. 70, pp. 960-71, 1980.
[46] R. F. Engle, "Autoregressive conditional Heteroscedasticity with estimates of the variance of United Kingdom inflation," Econometrica, vol. 50, pp. 987-1007, 1982.
[47] R. F. Engle, and V. K. Ng, "Measuring and testing the impact of news on volatility," Journal of Finance, Vol. 48, pp. 1749-78, 1993.
[48] R. R. Sims, Ethics and Corporate Social Responsibility - Why Giants Fall, Praeger, Westport USA, 2003.
[49] S. Ahmed, "Aggregate Economic Variables and Stock Markets in India," International Research Journal of Finance and Economics, vol. 14, pp. 141-64, 2008.
[50] S. d-Addona, and A. H. Kind, "International stock-bond correlations in a simple affine asset pricing model," Journal of Banking & Finance, vol. 30, pp. 2747-65, 2006.
[51] S. Leduc, and K. Sill, "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, vol. 51, pp. 781-808, 2004.
[52] S. M. Bartram, "Linear and nonlinear foreign exchange rate exposures of German non financial corporations," Journal of International Money and Finance, vol. 23, pp. 673-99, 2004.
[53] S. Maslov, and B. M. Roehner, "The conundrum of stock versus bond prices," Physica A: Statistical Mechanics and its Applications, vol. 335, pp. 164-82, 2004.
[54] S. P. A. Brown, and M. K. Yucel, "Energy prices and aggregate economic activity: an interpretative survey", Quarterly Review of Economics and Finance, vol. 42, pp. 193-208, 2002.
[55] T. Bollerslev, "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, vol. 31, pp. 307-27, 1986.
[56] T. Harchaoui, F. Tarkhani, and T. Yuen, "The effects of the exchange rate on investment: Evidence from Canadian manufacturing industries," Working Paper, Bank of Canada, 2005. Available at: www.bankofcanada.ca/en/res/wp/2005/wp05-22.pdf
[57] T. J. Brailsford, and R. W. Faff, "Modelling Australian stock market volatility," Australian Journal of Management, vol. 18, pp. 109-32, 1993.
[58] W. Schiebel, and S. Pöchtrager, "Corporate ethics as a factor for success - the measurement instrument of the University of Agricultural Sciences (BOKU), Vienna," Supply Chain Management: An international Journal, vol. 8, pp.116-21, 2003.
[59] Y. Hamao, "An Empirical Examination of the Arbitrage Pricing Theory: Using Japanese Data," Japan and the World Economy, Vol. 1, pp. 45-61, 1989.