Macroeconomic Variables and the Stock Market: the Case of Lithuania

Applying the EGARCH model, this paper finds that Lithuania’s stock marketindex is positively impacted by real GDP, the M2/GDP ratio, and the stock market indexesin the U.S. and Germany and negatively affected by the ratio of the government deficit toGDP, the LTL/USD exchange rate or depreciation of the litas, the domestic real interest rate,the expected inflation rate, and the euro area government bond yield. Hence, a declininggovernment deficit/GDP ratio, a lower interest rate or more money supply relative to GDP,the appreciation of the litas, a lower foreign interest rate, or a robust world stock marketwould help the stock market in Lithuania.