The impact of macroeconomic variables on the Swedish stock market : A VECM approach

Abstract: This paper examines the effects of macroeconomic indicators on the Swedish stock market, during the period from December 2002 until December 2021. The effects are examined through a Vector Error-Correction model (VECM), which is based on Johansen’s test of cointegration. The purpose is to investigate the long-run equilibrium relationships between macroeconomic indicators and the return of the Swedish stock market. The results from my study state that there is one cointegrated vector, and the VECM suggests that there are three long-run relationships, which all are statistically significant. The VECM showed that the repo rate, the inflation rate, and the industrial production all had significant long-run relationships with the return of the OMXS30. In short, the inflation rate had a negative impact on OMXS30, the industrial production had a positive impact on OMXS30, and the repo rate had a negative impact on OMXS30.