The Economics of Technology Stock Prices An empirical study of the relationship between macroeconomic variables and the Norwegian technology index

Abstract

Many of today's largest and most influential companies are in the technology sector. In recent years, these firms have experienced enormous growth in their stock price. For investors, this has been an excellent opportunity to make abnormal returns by investing in technology stocks. In the same period as the technology stock prices increased, there also were major changes in the economic environment. This suggests that the macroeconomic development has an impact of the prices of technology stocks. The purpose of our thesis is therefore to examine the relationship between chosen economic variables and the performance of the Oslo Stock Exchange technology index by answering the following research question: How do macroeconomic determinants affect the development of the Norwegian technology index? To answer the research question, we use quarterly time series data over a period spanning from 2000-2021. Based on earlier research and economic theory, seven macroeconomic variables are included. These are the 3-month NIBOR rate, inflation, the oil price, NOK/USD exchange rate, gross domestic product per capita, gross fixed capital formation and credit to the private sector. Previous literature has to a large extent examined the relationship between macroeconomic factors and the market as a whole. Our research differs from previous literature by focusing on the development of one specific sector. This can contribute to explain how the economics of technology stock prices differ from the overall stock market and how investors can exploit these differences to decide how and when to invest in the technology sector. The results of our analysis confirm that there exists a relationship between the macroeconomic factors and the Norwegian technology index. Several different relationships are found in our models. However, both models suggested a significant relationship from the 3-month NIBOR rate, inflation, the oil price and exchange rate to the value of the technology index, making those relationships robust. Investors should therefore be aware of the development of these factors when investing in the Norwegian technology stock market. Further, our analysis found no relationships from the technology index to any of the macroeconomic variables, implying that the index is a bad indicator for predicting the development of the macroeconomic variables.