Dynamic relations between the Norwegian stock market and macroeconomic variables

Abstract

We investigate the dynamic relations between the Norwegian stock market and various macroeconomic variables by employing a cointegration test and the vector error correction model (VECM). The data reveals that Oslo Børs benchmark Index and the selected macroeconomic variables are cointegrated, confirming that there exists a long-run equilibrium relationship. Consistent with US, Japanese and Singaporean discoveries, positive dynamic relations are found between Norwegian stock market and the variables Deutscher Aktien index and exchange rate USD/NOK. Negative dynamic relations are found between the stock market and the variables exchange rate EUR/NOK and unemployment rate. Lastly, a causality running from the Deutscher Aktien index and unemployment rate to Oslo Børs benchmark index was found in the analysis. We conclude that the relationship found in larger market from previous research, are also to some degree valid in a smaller and open economy like Norway.