Abstract
As we know investment in the Saudi stock market (TASI) is gaining popularity particularly since 2001 (Report of Aljazira Capital – 2010), it is important to know the impact of different macro-economic variables on the returns of the Saudi stock market. In this regard along with an extensive literature review we also referred specific recent few important studies which considered the Saudi stock return as a dependent variable and other economic factors as the independent variables [Kalyanaraman and Al-Tuwajri (2014), Arouri and Rault (2010) and Onour (2008)]. This paper examines the three important factors influencing the returns in the Saudi Stock Exchange (TASI) based on the macroeconomic variables of Saudi Economy. The dependent variable taken here is the Saudi index that is TADAWUL All Stock Index (TASI) and the three independent variables considered for our study here are the Oil WTI, Saudi Exports and the PE Ratio. Correlation analysis revealed that Saudi Exports and the PE Ratio were found to be highly correlated with TASI at 1% level of significance whereas Oil WTI and TASI are significantly correlated at 5% level. Step-wise regression analysis of the data revealed that the multiple regression models is significant at 1% level and the variable PE Ratio was the most important determinant of TASI followed by Oil WTI and Saudi Exports. Further the three independent variables explain about 93% of variation in the TASI Last Price.
Highlights
Stock market is an important part of the economy of a country
The results reveal that the relationship between Saudi Index (TASI) and Saudi Exports as well as TASI and the PE Ratio are highly positively correlated at 1% level of significance whereas Oil WTI and TASI are significantly positively correlated at 5% level
The study confirms that TASI is positively correlated with the three economic variables considered, viz., Oil WTI, Saudi Exports and Price Earnings ratio
Summary
Stock market is an important part of the economy of a country. The stock market plays a pivotal role in the growth of the industry and commerce of the country that eventually affects the economy of the country to great extent. Stock market is seen as a very significant component of the financial sector of any economy. It is seen as a source of distribution of wealth and mobilization of capital. Saudi stock market has 161 companies listed currently compared to 76 companies listed in 2001. With the establishment of Capital market Authority (CMA), the investors ‘confidence have been strengthened and in return the Saudi capital market has shown the market capital representing more than 82% of 2012 GDP
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