UNIVERSITY OF TWENTE. 
          
          
          
                      The influence of  
                      macroeconomic variables  
                      on stock performance 
          
                      Master thesis Business Administration 
                      Financial Management track 
          
          
                      Author: 
                      Sadiye Çiftçi - s0172553  
          
                      First supervisor: 
                      Prof. Dr. R. Kabir 
                      Head Finance & Accounting group 
                      University of Twente 
                       
                      Second supervisor: 
                      H.C. Henry van Beusichem, MSc 
                      Lecturer in Finance 
                      University of Twente 
                       
                      December 2014 
                                                                
          
       Abstract 
       This study investigates the influence of four macroeconomic variables: crude oil, interest rate, 
       exchange rate and gold, on stock returns of ten U.S. industries. The study uses monthly data from 
       January 1997 to September 2014 and the ordinary least squares approach. The observation period is 
       divided into a pre-crisis and post-crisis period; the period as a whole is also analysed.  
       The findings of this paper demonstrate that the impact of some macroeconomic variables differs 
       between industries, whereas other macroeconomic variables have a homogenous impact. The 
       negative impact of crude oil on stock returns is confirmed for four industries, namely consumer 
       goods, consumer services, financials and healthcare. Due to their nature, the oil and gas sector and 
       the industrials sector are positively influenced by increases in crude oil returns. Not only industries 
       which are oil sensitive, also industries which do not use oil at all are influenced by movements in the 
       crude oil returns. There is no evidence found in this study which suggests that the interest rate affect 
       stock returns. The rise of enhanced tools for managing interest rate risk could be an explanation for 
       this. The third variable, the exchange rate, has a heterogeneous effect on the industries that depend 
       on imports or exports of goods. The technology, consumer goods, consumer services and 
       telecommunication sectors exhibit an increase in stock returns when the domestic currency 
       depreciates. The other industries all present insignificant results for the exchange rate variable. 
       During the pre-crisis period, no relation between gold and stock performance was found for any 
       industry. During the post-crisis period, significantly negative results were found for the consumer 
       services, financials and industrials sectors, which could be a result of a substitution effect from 
       shares to gold.  
                     
                             
        
       Acknowledgements 
       Macroeconomics has attracted my particular interest since the start of my study at the University of 
       Twente. After completing my master courses I realized that my knowledge in this area is still too 
       limited and decided to strive for a deeper understanding of some macroeconomic variables. This 
       master thesis has given me a great opportunity to explore this area. Working on a subject which I 
       was not familiar with was a challenging and overwhelming experience, which would not have been 
       possible without the support and guidance of several people. I would like to give special thanks to 
       these individuals, without whom I may not have gotten to where I am today, at least not whilst 
       retaining my sanity. 
       First of all, I would like to express my deepest gratitude to my first supervisor Prof. Dr. Rezaul Kabir. I 
       would like to thank him for his quick responses and for his helpful suggestions and patience in 
       explaining some concepts. I really appreciate his comments and useful insights about the learning 
       experience when conducting empirical research. I am also very grateful to my second supervisor 
       MSc. Henry van Beusichem. I thank him for his valuable feedback and the interest he showed in my 
       thesis subject. His useful comments and suggestions helped me to improve my work. 
       I would also like to give special thanks to two important persons in my life. First, I would like to thank 
       my father Mahmut Çiftçi. Ever since my childhood, his daily ‘news hours’ have made me aware of the 
       importance of the economic environment. He has always been a great inspiration to me and he 
       played a great role in the establishment of this thesis. Secondly, I would like to thank Şükran Katik. 
       She was a true friend since the start of my study at the University of Twente and continuously 
       supported my success. I really appreciate her efforts to encourage and motivate me to start with my 
       various internships and parts of my study abroad.  
       Finally, I would like to thank my family for their never-ending support, not only during my time as a 
       student, but also throughout my life and in everything I undertake. 
       Sadiye Çiftçi 
       Enschede, December 2014  
        
                     
                             
        
       Table of contents 
       Abstract 
       Acknowledgements 
       1. Introduction ......................................................................................................................................... 1 
        1.1 Background .................................................................................................................................... 1 
        1.2 Research question ......................................................................................................................... 2 
        1.3 Contribution .................................................................................................................................. 2 
        1.4 Outline ........................................................................................................................................... 3 
       2. Literature review ................................................................................................................................. 4 
        2.1 Asset pricing theories .................................................................................................................... 4 
         2.1.1 Risk ......................................................................................................................................... 4 
         2.1.2 Capital asset pricing model .................................................................................................... 5 
         2.1.3 Arbitrage pricing theory ......................................................................................................... 7 
         2.1.4 CAPM versus APT.................................................................................................................... 8 
        2.2 Macroeconomic variables and stock performance ....................................................................... 9 
         2.2.1 Crude oil ................................................................................................................................. 9 
         2.2.2 Interest rate .......................................................................................................................... 12 
         2.2.3 Exchange rate ....................................................................................................................... 14 
         2.2.4 Gold ...................................................................................................................................... 16 
       3. Hypotheses ........................................................................................................................................ 18 
        3.1 Crude oil ...................................................................................................................................... 18 
        3.2 Interest rate ................................................................................................................................. 18 
        3.3 Exchange rate .............................................................................................................................. 19 
        3.4 Gold ............................................................................................................................................. 20 
       4. Methodology and Data ...................................................................................................................... 21 
        4.1 Review of methodology .............................................................................................................. 21 
        4.2 Regression model ........................................................................................................................ 22 
        4.3 Data ............................................................................................................................................. 23 
         4.3.1 Data sources ......................................................................................................................... 26 
       5. Results ............................................................................................................................................... 27 
        5.1 Descriptive statistics .................................................................................................................... 27 
        5.2 Correlations ................................................................................................................................. 29 
        5.3 Regressions .................................................................................................................................. 31 
       6. Discussion .......................................................................................................................................... 37