Unveiling the Predictive Power

Sammanfattning: To obtain excessive returns on the stock market, investors should be able to effectively forecast what drives the fluctuations of the stock market. The usage of macroeconomic factors as indicators for stock market performances has been utilized more profoundly in recent times. However, the implications of the efficient market hypothesis suggests that such macroeconomic factors cannot be used to predict stock market returns. This thesis investigates the predictive power of different selected macroeconomic variables on the returns of the Swedish stock market during the period from January 2002 until December 2019. The relationship between the Swedish stock market index OMXS30 and the inflation rate, repo rate, STIBOR rate, unemployment rate and the industrial production index are being analyzed by utilizing the Vector Autoregression model and the Granger causality test. The results from this study suggest that inflation has some predictive power on the returns of the Swedish stock market and that the unemployment rate shares a positively associated relationship with the returns.