Macroeconomic Factors and Stock Returns: Evidence from the Swedish Stock Market

Abstract: This study investigates the relationship between stock returns and macroeconomic factors in a small, open economy by utilizing a vector autoregression (VAR) approach on Swedish large-cap, mid-cap, and small-cap data from 2003 to 2019. To determine the relationship between the macroeconomic factors and stock market return, Granger causality tests are run on each of the markets. Consistent with previous studies, the empirical evidence suggests that the Swedish repo rate, inflation rate, and slope of the yield curve significantly impact the stock returns of the OMX 30, OMX mid-cap, and OMX small-cap Swedish stock markets.