Asymmetric effect of macroeconomic variables on the emerging stock indices: A quantile ARDL approach

Abstract The objective of this study is to examine the short‐run and long‐run impact of macroeconomic variables on E7 stock indices across bullish, bearish and normal states of the stock markets. For this purpose, this study uses both autoregressive distributed lag (ARDL) and quantile ARDL (QARDL) models. The findings based on the ARDL model indicate that, in the long‐run, foreign direct investment (FDI), trade balance and industrial production index (IPI) significantly affect emerging stock indices. In addition, the findings based on the QARDL model indicate that the short‐run effect of FDI, consumer price index, interest rate and exchange rate varies across bullish, bearish and normal states of the emerging stock markets, whereas the long‐run effect varies for all macroeconomic variables except IPI. These findings indicate that the results change when QARDL model is used; however, these findings remain same across seven emerging stock indices. Finally, this study proposes important policy recommendations based on the findings of this study.