Effects of foreign portfolio investments, domestic credit and inflation on stock market prices in the Philippines (2001-2010)

• Main Authors: Javier, Dane Oliver J., Suarez, Niccolo Gabriel R., Sugue, John Kevin E., Uy, Christian Charles L.
• Format: text
• Language: English
• Published: Animo Repository 2012
• Subjects: Stock exchanges > Philippines; Stocks > Prices > Philippines; Investments > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18336
• Institution: De La Salle University

As an emerging market economy, the Philippines offers various investment opportunities to investors and stocks is one in particular. Before investing on stocks, it is appropriate to study their market prices. Stock market prices are said to be affected by various macroeconomic variables. This study investigates on the effects of foreign portfolio investment, domestic credit, and inflation on stock market prices in the Philippines and determine on whether these macroeconomic variables are significant factors. The proponents used monthly historical data of net foreign portfolio investments in equity, domestic loans to private sector, inflation and Philippine Stock Exchange index, transformed into rates of change, and utilized the vector autoregression model, vector autoregression's impulse response function, and forecast error variance decomposition to provide empirical results. Findings show that all three macroeconomic variables do affect stock market prices significantly. For the direction of the relationship, domestic credit has a positive effect on stock prices while foreign portfolio investments and inflation both have negative effects on stock market prices.