| | Category | MA | P23 | Market Behavior as a Function of Macroeconomic Factors |
| | Abstract | Recent financial news and in particular the stock market performance in |
| | the U.S. has been gloomy. The primary United States stock market index, |
| | Dow Jones Industrial Average (DJIA), lost approximately 40% of its value |
| | in the period from December 2007 to November 2008. With this situation at |
| | hand investments are put at a greater risk. For this project, a stepwise |
| | regression method was used to find an equation to predict the |
| | performance of the DJIA. A literature review was done to identify |
| | macroeconomic factors that influence the stock market performance. The |
| | factors that significantly influenced the DJIA were the unemployment rate, |
| | bank prime rate, and the exchange rate. The multiple regression analysis |
| | consisted of an equation taking into consideration quadratic terms and |
| | interaction between factors. A spreadsheet tool was developed to |
| | present the analysis and to conduct scenario analysis. In addition, |
| | predicted DJIA values were compared with the actual data, which |
| | showed an accuracy of 66.8%. This tool can be used to forecast the |
| | behavior of the Dow Jones Industrial Average based on estimates of the |
| | main factors. |
| | Bibliography | Statistics for business and economics by James T. McClave, P. George |
| | Benson, and Tery Sincich. http://www.bls.gov/ |