Abstract :
This study empirically considers five emerging markets from January 1995 to July 2019 to see whether nonlinearity helps to investigate responses to macroeconomic shocks in stock prices. With Vector Smooth Transition Regression, it uses real effective exchange rates, interbank interest rates, industrial production indices, and stock market returns. It confirms that nonlinearity in emerging markets may stem from their susceptibility to high volatility arising from political and geopolitical turnovers or global financial liquidity. It highlights significant differences in the asymmetric patterns. Some emerging markets respond asymmetrically to macro-variables, while others suggest that stock returns adjust from high or low towards the middle ground. Policy-makers seeking acceptable, accessible, sustainable and replicable actions that help stakeholders to invest may get help from our study to understand the properties of emerging markets central to each country’s economic activity.
