Impact of Macroeconomic Factors on Stock Returns: Saudi Stock Market

Abstract

This study examines the impact of various macroeconomic factors on the Saudi stock market, specifically the Tadawul All Share Index (TASI), using data from February 2012 to April 2022. It also explores sectoral differences across 13 sectors. The key factors analysed are oil prices, the World Uncertainty Index (WUI), money supply (M2), exports, imports, SAIBOR, inflation, real effective exchange rates (REER), the Dow Jones U.S. Select Aerospace & Defense Index, and the S&P 500 Index. The findings indicate that oil prices, money supply, and exports significantly boost TASI returns, highlighting the roles of oil revenues and economic liquidity. In contrast, global uncertainty and imports negatively impact TASI returns, reflecting investor risk aversion and the adverse effects of foreign goods reliance. Additionally, the Dow Jones U.S. Select Aerospace & Defense Index positively influences TASI, showing the impact of global defense spending. Sectoral analysis reveals unique responses to these macroeconomic factors, which shows the need for sector-specific investment and policy strategies to enhance market stability and growth.