The Effect of Macroeconomic Variables on Market Risk Premium : Study of Sweden, Germany and Canada

University essay from Mälardalens högskola/Akademin för hållbar samhälls- och teknikutveckling; Mälardalens högskola/Akademin för hållbar samhälls- och teknikutveckling; Mälardalens högskola/Akademin för hållbar samhälls- och teknikutveckling

Abstract:

ABSTRACT

Title

The Effect of Macroeconomic Variables on Market Premium. Study of Sweden, Germany and Canada

Authors

Samira Allahyari Westlund

Arad Tahmidi

Dmytro Sheludchenko

Supervisor

Christos Papahristodoulou

Key words

Macroeconomic, market risk premium, GDP, inflation, money supply, primary net lending and net borrowing, regression analysis.

Institution

Mälardalen University

School of Sustainable Development of Society and Technology

Box 883, SE-721 23

Västerås

Sweden

Course

Bachelor Thesis in Economics (NAA 301), 15 ECTS

Problem statement

Risk premium value is of great interest to the financial world, since this value represents the extra return that investors receive considering the risk from investing in financial markets. The fluctuations in stock markets are believed to be influenced by changes in macroeconomic variables.

Purpose

The purpose of this paper is to analyze the effect of macroeconomic variables on and their relation to market risk premium in Canada, Sweden and Germany in the years 1992 – 2007.

Method

Multiple Regression Analysis, Ordinary Least squares (OLS)

Result

Forecasted Growth in real GDP is the only macroeconomic variable which has significant relation with market risk premium. The effect of money supply was found to be insignificant. Net lending and net borrowing had significant negative effect on market risk premium in Canada, whereas in Germany and Sweden the relationship was not significant.

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