The Impact of Macroeconomic Variables on the Returns of Listed Stocks at Palestine Exchange: Economic Sectors Model

The aim of this paper is to investigate the impact of economic factors on returns of Palestine
stock exchange and to test the validity of Arbitrage Pricing Theory (APT) in the context of
Palestine. It used a sample of 49 firms that represent all listed firms at Palestine Exchange
(PEX) based on filtering process of observation value for its closing prices. This paper uses a
percentage change in stock price per listed firm as dependent variable and some
macroeconomic variables, such as interest rate, exchange rate, inflation, unemployment rate,
and GDP per capita, as independent variables.
An econometric model was developed and used to test the impact of these selected
macroeconomic variables on the returns of sample firms based on the panel data for the
period of January 2012 to December 2015. The result revealed that interest and consumer
price index have positively significant effect on the returns of banking and investment firms
that are listed at PEX. Moreover, GDP per capita has a positive effect on the returns of
insurance companies. However, the exchange rate and unemployment rate have no
significantly impact on stock returns in case of PEX. Therefore, this result is failed to support
arbitrage pricing theory and can’t be used for predicting future returns of Palestine stock
exchange.
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