Macroeconomic Effects on Emerging Market Sector Indices

• Published in: Journal of emerging market finance 2010-08, Vol.9 (2), p.131-169
• Main Author: Schätz, Alexander
• Format: Article
• Language: English
• Subjects: Commodities; Economic indicators; Economic structure; Emerging markets; Error correction models; Macroeconomics
• ISSN: 0972-6527; 0973-0710
• DOI: 10.1177/097265271000900202

This article supplies empirical evidence of the dynamic interactions between international macroeconomic determinants and 10 emerging market sector indices. As so far empirical research has followed the scientific approach of examining each country separately, this article conducts a supranational sector analysis instead. Due to several economic and monetary crises, we find structural breaks in 9 of the 10 sectors. Taking into account the consequential sub-periods, the sensibility of each sector index to macroeconomic influences is detected by the VECM findings which allow conclusions to be drawn about the sector-specific distinctions in the emerging markets. Contrary to theoretical expectations, the majority of the examined sectors benefited from increasing commodity prices during the examination sample. This finding, therefore, affirms that the ongoing catching-up process and the consequential growth in affluence in the emerging countries is largely driven by growing commodity prices and exports.