The Influence of Macroeconomic Variables on Philippine Stock Market Indices: A Structural Equation Model Approach

Structural Equation Modeling was carried out in this study to investigate whether macroeconomic variables under Business Activity, Consumer Activity and Monetary Policy influence the performance of Philippine stock market indices. A proposed economic-based model was used to determine which set of variables has direct and indirect effect on the stock market for the period of 2006 to 2018. Results showed that Consumer Activity and Monetary Policy were the main drivers that influence the performance of all sectors in the Philippine Stock Market. Business Activity is also a significant factor but only for the Financial, Industrial, and Property Sectors. On the other side, Monetary Policy showed a significant direct effect on Financial, Holding Firms, Services, and Mining-Oil Sectors but no direct effect on the Industrial and Property Sector. The results conclude that stock performance is significantly determined by some fundamental macroeconomic variables such as money supply, interest rate, remittances, consumer spending, and industrial production index. These findings suggest that investors should pay close attention to consumer activity since an increase in stock market performance is mainly determined by this factor.