LITRATURE REVIEW

Background
The stock market is subjective by a lot of factors at the same time. There is not one single factor that makes the stock market go up or go down. A large number of factors come jointly to shape the overall investment environment and reason the stock market to move. Investors are required to understand all of the factors that control the stock market in order to be able to forecast the future of the capital markets. Several studies examine that macro-economic factor affect stock prices, there is incomplete study on how these factor influence rising capital markets. Many researchers investigate that macro-economic factor like borrowing rates and the inflation rate influence on capital/equity market movements. Their results recommended that macro-economic factor should be measured for investors in rising economies. Stock prices have been studied for their relationship to local macro-economic factor that are represented by discount-rate, Ind production index, and the inflation rates. The relation-ship between stock price and the discounting rates is controlled by investors in portfolio. The pressure of the macro-economic on the capital market is a subject of continuing importance and attraction to academics, investment-professionals, and monetary policy-maker. This research is based on the past, present and future aspects of stock market integration. Basically this study tells us what the salient features of equity markets which influence were and affects the stock market price or volume.

The equity market are interlinked with various types of indicator like inflation, budget, fiscal policy, volumes of the shares, dividends, country ,political risk which however effects the performance of equity markets.

Objective
Our objective is to examine the relationship between macro-economic factors on stock-market prices, as they are co integrated with each other that when there is change in economic factors such as inflation, interest rate, political instability. Stock market investors are concerns about the markets work professionally, separately and with sound basics. Real market condition tends to show a link as is obvious from recent market arrangements across the world. The purpose of this paper is to observe whether the stock markets in the world have co-integrated with the major equity players like discount rate, inflation and others.

Significance
Our research is significance for the equity markets that are affected with any macroeconomic factors. In our research we observe the relation-ship between the macroeconomic indicators with stock/share prices.

This study will be a significant effort in identifying the effect of macro-economic factors like interest rate, inflation, monitory policy, money supply. This study will also be beneficial the investors who are effected by any of these macro-economic factors.

When the economy moves down and the market is move in a down-ward direction, its not fundamentally very bad as this could be a good chance to invest in some good stocks at attractive price.

A company profits & future forecast depend mostly on the on whole businesses and economic weather. No matter how strong a company position is? If the economy is down-ward, the performance of a company will surely be declined. Recurring stocks will most likely bear a big impact compared to not recurring or doubtful stocks. For the meantime, the power full companies will be able to ride out the insensible economic condition better than the others.

An economic factor is in easy term, the numerical data of a positive economic factor that are obtainable from time to time by the govt agencies, which investors can be used to measure the economic conditions. It allows investor to analyze the historical condition and existing condition and to plan the future forecast of the economic activity. 2

There are 3 basic indicators that follow up to investors in the stock market that is inflation, GDP and the labor market.

Inflation
Inflation is a tool important for all type of investments, for the reason that it decides the rate of return that you received from your investment.

Inflation effects on the capital market are even more many-sided. A company income will be affecting by high rate of inflation. The initial cost of the company increase as a result the overall cost of the company increase or by which estimates that how much

the company be able to overcome to minimize the cost. The costs that the company will increase resulting decrease its profits, as all other factor being equal.

Gross Domestic Product

A further significant factor is the Gross domestic product measurement. It is the sum of value of the products and services produced, prepared in a country at a given period of time. When these figures compare to the previous year figures of production, the difference of these figures show the country's economy is growing or declining.

When the Gross domestic product is positive, the capital market will move positively as there will be an increase in investors confidence, attracting them to invest much more in the stocks. This will increase the overall performance of the companies to be these can be selected.

When the Gross domestic product decreases, customers decrease their investments. These conditions affect the performance of companies depressingly, as a result downward trend on the capital market.

Labor market
The un-employment rate as a amount of the overall labor force will show the country's economic situation. During an economic concentrate, most companies will either stop hiring or in more extreme cases trimed, by decreasing costs and decreasing capacity of the labor. When these condition take place, the un-employment rate will

move and increase, which creates a negative impact on stock market investor confidence.

By understanding the economic factors, Evaluate the current situation of economy and the trends in which its moved. By this information you are able to research on that companies which you are interested for investments.

Who Says What

By Ryan Barnes, Economic factor can have a massive impact on the capital market; so, knowing how to realize and observe them is important for all investors.

Sharma & Wong-bangpo (2002) examine the impact of long-run discount rates on share prices in Asian economies. A harmful long-run connection between share prices and discount rate was searched in the many Asian countries. An optimistic relation was detected in several countries. These differences must be influenced by discount rate and supply of money. The increasing rate of inflation in Philippins and the Indonsia influence the long-run depressing relation between the supply of money & share prices.

Mc-Millan (2005) experienced that how the share prices react to the in-stability of Ind production and medium to short -runs discount rates in the U.S.A market. He establishes an important upward relationship between the Ind production and share

prices. The major reason for rise in the real sector is future cash flows that create a higher future bonus. With the anticipation and forecasting of higher bonus, investors have been always ready to buy stocks at higher prices.

Strauss & Nasseh (2000) shows a positive link between share prices and the Ind production on the local share markets in different countries.

The Saettem & Gjerde (1999) investigate that the Ind production has a broadly positive impact on share prices but it is a bad impact on the market.

Another factor used to observe the relationship between macro-economic factor and share prices is the consumer prices index. Previous studies suggest that consumer prices index is such a particular factor representing several macro-economic variables like goods market, inflation & discount rate (Strauss & Nasseh, 2000; Sharma & Wongbangpo, 2002; investigate that consumer prices index as alternative for inflation has vital control on capital Market. Sharma & Wongbangpo (2002) investigate that how goods market are mainly affect by the capital markets, for check the effect of this theory , used gross national product and consumer prices index. A downward trend has observed between share prices & consumer prices index, as a result of the higher risk of upcoming earnings. The increase in level of prices will increase the cost of manufacturing, which in turn would reduce future profitability.

The international macro-economic factors is another factor which have a impact on local capital markets, as de Nicolo & Canova (1995) recommended that any changes in intl level will fairly effect the volotality of markets.

Dickin-son (2000) shows the impact of the intl relations with share prices in different countries, like the U.S.A and Europ countries: the Germany, France, and

UK. His study presented proof of short run relations among intl stock indices in Europe markets.

France & U.K stock market indices separately are subjective by the German & U.S.A markets in short run. Only Germany index has a long term link with U.S.A index with a good sign.

Strauss (2000) found intl effects in European countries. They observe the economies of all other countries are considered locally, with Germany selected factors to be used as alternative for intl effects.

Rubio & Martinez (1989) experienced the Spanish market return and found that there were no important pricing connection between stock returns and the macroeconomic variables.

Taylor & Poon (1991) and Rubio & Martinez (1989) establish that the model used for testing the APT cannot be used for making forecast either in the Spanish stock market or in the UK market.