The impact of macroeconomic variables on stock market performance: the case of Saudi Arabia Stock Exchange (Tadāwul)

Abstract

The study aims to investigate the effect of changes in macroeconomic variables (gross domestic product, inflation rate, unemployment, foreign direct investment, interest rate, money supply, crude oil prices) on the Saudi Arabia stock market performance (TASI). The macroeconomic variables were obtained from DataStream, Saudi Arabia Central Bank, and Saudi General Authority for Statistics, while the stock market index data was obtained from Saudi Exchange for the period 2000 to 2022. The multiple linear regression technique was employed in investigating the relationship. The study found that unemployment rate had a moderate statistically significant positive correlation with the Tadawul All Share Index at 99% confidence level. While there was a weak positive correlation with other macroeconomic variables, these correlations were not statistically significant. Further, the study found that the macroeconomic variable changes accounted for 66.5% of changes in the TASI. Among the macroeconomic variables, only the changes in unemployment rate and foreign direct investment had a statistically significant positive impact on the TASI. The impact of unemployment rate was higher than the impact of foreign direct investment. An implication is that Saudi Arabia should focus more on addressing unemployment rate and attract foreign direct investment for the stock market to grow and perform better.