Stock Market and Economic Development: A Case Study of India

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Stock Market Development and Capital Accumulation: Does Law Matter? A Case Study of India

Stock Market Development and Capital Accumulation: Does Law Matter? A Case Study of India

From the Financial Structure Dataset constructed by Thorsten Beck of World Bank (available on-line), a number of indicators of Indian stock market development are available over the period 1976-2005: average real stock market capitalisation relative to GDP (RMKAPGDP), total shares traded on the stock exchanges relative to GDP (VALTRDGDP) and the turnover ratio – the ratio of the value of total shares traded to average real market capitalization (TURN). 1 Their log-values are plotted in Figure 3. It shows that stock market capitalisation (RMKAGDP) and the value of traded stocks (VALTRAD) rose over the whole period amidst much fluctuation since the early 1990s. The turnover ratio (TURN) showed a tendency to decline till the mid-1990s; thereafter it moved together with VALTRD – rising rapidly with a sharp fall in 2001. So the first two indicators show statistically significant trend growth and the turnover ratio shows no such trend growth.
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Can Stock Market Development boost Economic Growth in Developing Economies? The Case of Egypt

Can Stock Market Development boost Economic Growth in Developing Economies? The Case of Egypt

They found that the empirical results adopt the idea of no significant relationship between stock market development and economic growth even after controlling and adjusting the stock market development. Azarmi, Lazar &Jeyapaul (2011) evaluate the relation between stock market development and economic growth in India through the period 1981 to 2001 by using time-series regression. They found positive relation for the pre-liberalization period and negative for the post-liberalization period, which consider Indian stock market as a casino that is not contributing to the economic growth of the country. Carp (2012) analyzes the dynamic of the stock market and the impact of the volatility of the foreign capital inflows as proxy of economic growth in Central and Eastern Europe through the period 2000 to 2007 by using Granger causality tests. They found that market capitalization and stock value traded do not exert any impact on economic growth rates. The Third group of studies did not find a relationship between stock market development and economic growth in a period; however, they find a relationship between stock market development and economic growth in another period e.g. Rioja &Valev (2014), investigate the effects of stock markets on economic growth in low and high income countries by using dynamic panel Generalized-method-of- moments (GMM). They found that stock markets have not contributed to capital accumulation or productivity growth in low- income countries. Conversely, stock markets have sizable positive effects on both productivity and capital growth in high-income countries. Jin Guo (2014) examines the causal relation between stock returns and real economic growth in China by using nonuniform weighting cross-correlation approach and the multivariate generalized autoregressive conditional heteroscedasticity model. He found that there are no causal relation between China’s stock returns and real economic growth in the period before the subprime crisis. However, there is unidirectional causal relation in mean from real economic growth to stock returns and unidirectional causal relation in variance from stock returns to real economic growth for the period after the subprime crisis. From the above discussion, although the economic thought supports a significant and positive relationship between stock market development and economic growth as the stock market plays a significant role in financing the necessary projects of economic development instead of government funds, the results of previous studies vary from market to another and conclude that there may be a causal relationship between financial development and economic growth in one country and does not exist in another country.
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Stock Market Development and Economic growth in India: An Empirical Analysis

Stock Market Development and Economic growth in India: An Empirical Analysis

From the related literature, it was worth noting that empirical evidence is still inconclusive and remains ambiguous in the context of Indian capital markets. With the pace of economic reforms and the rapid integration towards the world economy followed in India, the importance of capital markets has grown significantly and has been receiving global attention, especially from sound investors. The Indian stock market has witnessed major fundamental institutional changes, resulting in drastic reduction in transaction costs and significant improvements in efficiency, transparency and safety which led the stock exchanges to do a remarkable task for the economic development of the country. Concurrently, the economic expansion through technological changes, products and services innovation in the post-reforms period is expected to create a high demand for the development of stock markets. This paper attempts to examine the causal nexus between stock market development and economic growth in the Indian context. Most importantly, this study will seek to provide more effective and appropriate policy for the Indian economic planners, financial market regulators, market participants, academicians, and alike who seek to develop economic policies to best target for a sustainable economic development as well as the future direction of stock market developments.
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STOCK MARKET AND ECONOMIC GROWTH – AN EMPIRICAL STUDY

STOCK MARKET AND ECONOMIC GROWTH – AN EMPIRICAL STUDY

Stock market in the process of economic development has been well recognized today. In the 1980’s developing countries have started liberalizing their financial markets giving considerable importance to the development of stock market. However, in India stock market remained a dormant part of the financial system until the initiation of the structural adjustment programme in 1991. The structured adjustment programme implemented in a gradualist pattern consisted of comprehensive fiscal, financial and external sector reforms. As part of it capital market reforms were launched in 1992.
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The Impact of Stock Market Volatility on Economic Growth (Jordan’s Case)

The Impact of Stock Market Volatility on Economic Growth (Jordan’s Case)

Interest rates: These are types of systemic risk, but the researcher thinks that it is better to separate this factor and conduct a separate study by considering this variable as an independent out of the other systematic risks in general due to its significant adverse impact on the prices of shares traded. It is well known that when interest rates get high, investors would be interested to place their money as bank deposits to get profits due to the rise of interest rates. For this reason, some are willing to sell their shares to obtain the necessary cash which causes an increase on the stock supply, which leads to a reduction on the stocks market price (Crestmont, 2011). Conversely, lower interest rates lead to increased liquidity and thus an increase in capital flows in the stock market in anticipation of higher rate of return to compensate for low interest rates in banks. Bank interest is the liability of working capital for most companies and thus any interest rate increase will lower their net profits, which consequently depreciate the dividends (Daferighe, Emmanuel).
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The Role of FDI on Stock Market Development: The Case of Pakistan

The Role of FDI on Stock Market Development: The Case of Pakistan

According to Alfaro (2003), FDI in primary sector of the economy can have a negative effect on economic growth whereas there is a positive relationship when investment is made in manufacturing sector. However, FDI contributes positively to economic growth but its overall impact on economic growth may not be important and the constituents of FDI made a positive contribution (Ayanwale, 2007). Countries that have well established financial markets can achieve a lot more from FDI (Alfaro, Chanda, Ozcan & Sayek, 2004). In developing economies except developed economies, FDI inflow can have a positive impact over economic growth (Johnson, 2005). In Nigerian experience, the FDI and financial development can made a negative impact over the economic growth but the liquidity of financial market can be a source for economic growth (Saibu, Wosa &Agbeluyi, 2011). However, some studies show that FDI does not have a direct influence over economic growth (Carkovic and Levine, 2002). Therefore, the theories yield ambiguous expectations about the growth effects of FDI. Adam and Tweneboah (2009) argued that there is a three-sided causal relationship between FDI and stock market development (I) FDI stimulates economic growth (II) Economic growth stimulates stock market development (III) So we make inference that FDI promotes stock market development. Due to the given background information the major aim of our study is to identify the major contributing factor to development of Pakistan stock markets with our particular emphasis on FDI and to identify the relationship between Stock market development, FDI, Domestic savings, Exchange rate, and Inflation rate in Pakistan using ordinary least square method over the period 1988-2009. The balance of paper organized as follows. Section 2 provides us a brief overview of literature. In section 3 outlines Methodology and the estimable model with data collection method. Section 4 discusses empirical findings. In final section 5, we present our study conclusion with some policy implications.
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Economic Forces and Stock Price in an Emerging Market: The Case of India

Economic Forces and Stock Price in an Emerging Market: The Case of India

This paper examines the relationship among oil prices, exchange rate, wholesale price Index, index of industrial production, short term interest rates and long term interest rates and stock market in India. Initially SENSEX was found to have a positive relationship with wholesale price index, index of industrial production and short term interest rate and a negative relationship with oil prices and exchange rates. I then applied various time series methods like VAR tests and Granger causality tests were applied which showed positive short run relationships of Sensex with lags of Sensex itself, WPI and long term interest rates. However Sensex showed negative short run relationship with oil prices and short term interest rates. The granger causality tests proved that there is a short run causality running from WPI, and short term interest rate to Sensex. Finally by performing Vector auto regression it was found that Sensex is positively related to wholesale price index and long term interest rate in the long run. The findings of this study are of particular interest and importance to policy makers, financial managers, financial analysts and investors dealing with the Indian economy and the Indian stock market.
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Stock Prices, Capital Market Development and Nigeria’s Economic Growth

Stock Prices, Capital Market Development and Nigeria’s Economic Growth

Interest in studies on stock market behaviours abounds but considering the crucial roles capital markets and their developments play in facilitating capital accumulation among nations of the world, researches relating to the thesis can never be emphasized. Available literature reveals that some examine the relationship between stock market development and economic growth, some examine stock prices and economic growth, and some others examine stock prices and market capitalization. Despite the varied approaches to the capital market analysis, views are similar, tending to pursue similar goals of enhancing the healthiness of the nation’s investment drive. This stems from the generally held view that financial resource mobilization by capital markets as complement to fund-raising through commercial banks cannot be avoided if the economy is to meet its growth mission (Alile, 1999, Okereke-Onyuike, 2000, Osinubi and Amaghionyeodiwe,2003, Abu,2009, Adaramola,2011,Okey2012, Eriemo,2013,2014). Thus, a well developed stock market is crucial for the mobilization of financial resources for long term investment and thus constitutes one of the major pillars of economic growth. The stock market development is expected to accelerate economic growth by providing an avenue for growing companies to raise capital at lower cost..Although, the justification of these expectations has, in the past been provided by the works of well-meaning writers, the approach of this study differs slightly by the inclusion of government stock as a variable in the modeling.
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Stock Market Development and Economic Growth: A Matter of Information Dynamics

Stock Market Development and Economic Growth: A Matter of Information Dynamics

At the theoretical level, the study of stock markets and growth has been given new impetus with recent analyses of the design of optimal financial contracts under asymmetric information in dynamic general equilibrium models (Bernanke and Gertler, 1989; Bencivenga and Smith, 1993; Bose and Cothren, 1996, 1997). This new body of research enables one to understand the evolution of the financial system and to explain how alternative types of financial contract may emerge to solve problems of moral hazard and adverse selection. These problems, arising from asymmetric information between lenders and borrowers, imply a violation of the Modigliani-Miller theorem concerning the irrelevance of a firm’s capital structure. Essentially, firms in need of external finance face a cost minimisation problem which they must solve by issuing different forms of financial contracts under different circumstances. The crucial point is that this choice is affected by the level of capital accumulation.
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Stock market development and economic growth in Africa's frontier markets

Stock market development and economic growth in Africa's frontier markets

The text book theory, as discussed in the previous sub-section suggests that the stock markets promotes savings rate and also creates a platform for takeovers; that is, larger more resource efficient corporations taking over less efficient, smaller markets. Singh (1999) however opposes this view in relation to developing countries. He puts forward that many firms follow the pecking order hypothesis: that is, the use of internal funds rather than issuing external equity to finance new projects. In this case, this stock market does not act like as saving vehicle, as one would expect. In cases where the stock market has been able to provide much needed funds to large corporations, thus expanding them, this growth had not been translated to the rest on the economy. Interestingly what actually took place was portfolio substitution; individuals moving from bank savings to the purchase of shares. There was no real increase in an economy’s aggregate savings and investments (Singh and Hamid 1992). A good example of this occurrence was in Mexico, whereby large capital inflows ($91 billion) were injected in the 1980’s. This generated a stock market boom, mainly caused by herd behaviour. The Mexican economy expanded at 3.5% per annum despite a widening current account deficit. Eventually the bubble burst in 1994 and the results were catastrophic for the economy.
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A Note on Relationship between Economic Activity and Stock Market Development: a Case of Euro Area Countries

A Note on Relationship between Economic Activity and Stock Market Development: a Case of Euro Area Countries

The aim of the paper is to empirically examine if the causal relationship between economic activity and stock market development exists in the selected 11 EA countries. The existence of relationship is investigated with the use of cointegration, vector error correction model and Granger causality during three sub‑periods between January 1993 and January 2017. The results show that the general conclusion on the relation between activity and stock market development cannot be stated and that country‑specific development should be taken into account when making decisions either from the investors’ or policy makers’ perspective. It also seems that the level of integration plays important role when studying the nature of relationship between variables during different time periods. Keywords: economic activity, causality, cointegration, stock market development
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Stock Market Development and Economic Growth: Empirical Evidence for Emerging Market Economies

Stock Market Development and Economic Growth: Empirical Evidence for Emerging Market Economies

Abstract: Contemporary economies of developing countries are changing due to rapid changes in the world economy. The economies of emerging market countries are witnessing changes in the composition of capital flows because world stock markets are expanding rapidly. Foreign direct investment and stock market boom are the indicators of the changing world economic order. The objective of this study is to examine the relationship between stock market development and economic Growth. Empirically, based on the data for 17 emerging market and 10 developed market economies during the 12 years’ period, from 2000 - 2011 using the generalized method of momentum (GMM) for dynamic panel data. To control for the country specific effect, the model is further estimated for the developed and emerging member economies. The key findings of the study reveal that there exists statistically significant relationship between stock market development and economic growth both directly, as well as indirectly by boosting investment behavior. The results also indicate robustly that stock market development is an important wheel for economic growth.
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Impact of Macro Economic Variables of India and USA on Indian Stock Market

Impact of Macro Economic Variables of India and USA on Indian Stock Market

Mohammad (2011) uses multivariate regression model computed on standard OLS formula and Granger causality test to model the impact of changes in selected microeconomic and macroeconomic variables on stock returns in Bangladesh. He examines monthly data for all the variables under study covering the period from July 2002 to December 2009. The study finds a negative relationship between stock returns and inflation as well as foreign remittance while market price/earnings and growth in market capitalization have a positive influence on stock returns. However, no unidirectional granger causality is found between stock returns and any of the independent variables and the lack of granger causality reveals the evidence of an informally inefficient market. Naik and Padhi (2012) also studied the relationships between the Indian stock market index (BSE Sensex) and five macroeconomic variables, namely, IIP, wholesale price index, money supply, treasury bills rates and exchange rates over the period 1994-2011 with application of Johansen’s co-integration and vector error correction model to explore the long-run equilibrium relationship between stock market index and macroeconomic variables. The analysis reveals that macroeconomic variables and the stock market index are co-integrated and, hence, a long-run equilibrium relationship exists between them. It was found that the stock prices positively relate to the money supply and industrial production but negatively relate to inflation. The exchange rate and the short-
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Causal Relationship between Macro-Economic Indicators and Stock Market in India

Causal Relationship between Macro-Economic Indicators and Stock Market in India

Over the past few decades, the interaction of share returns and the macroeconomic variables has been a subject of interest among academicians and practitioners. Kaneko and Lee (1995), Lee (1992), Fama (1981) determined a positive relation between stock returns and real economic activity in US and Japanese stock markets but the same relation is not found in European and South Asian markets. Poon and Taylor (1991)’s study for the UK market, Martinez and Rubio (1989)’s study for the Spanish market, and Gjerde and Saettem (1999)’s study for the Norwegian market have not implied a significant relation between stock returns and macroeconomic variables. Mookerje and Yu (1997)’s study on forecasting share prices for the Singapore case obtained a result that money supply and exchange rate have an impact upon forecasting share prices. So the results are mixed. If stock prices accurately reflect the underlying fundamentals, then the stock prices should be employed as leading indicators of future economic activities. Therefore, the causal relations among macroeconomic variables and stock prices are important in the formulation of the nation’s macroeconomic policy. Presently the performance of Indian stock market is analyzed carefully by large number of global players; this motivates us for exploring research in Indian stock market and macroeconomic indicators to determine the Indian stock market efficiency
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Stock Market Development and Economic Growth in Nigeria: A Camaraderie Reconnaissance

Stock Market Development and Economic Growth in Nigeria: A Camaraderie Reconnaissance

This study on camaraderie reconnaissance explored the long run relationship between stock market development and economic growth in Nigeria from 1981 to 2015. Market capitalization ratio and turnover ratio were used to measure the depth of development of Nigeria’s stock market, whereas growth rate of real gross domestic product facets economic growth. Secondary data were sourced from Nigerian Stock Exchange (NSE) and National Bureau of Statistics (NBS) were analysed using Autoregressive Distributive Lag (ARDL) model. From the analysis performed, the depth of development in Nigeria’s stock market has positive but insignificant relationship with economic growth both in short and long run. The granger causality analysis dispelled the adeptness of Nigeria stock market to propel growth. Stock market is growth inducing but in the context of Nigeria, economic growth is independent of stock market operation. The government need to steadfastly tackle inhibiting factors such as infrastructural inadequacy, weak institutional and regulatory framework encumbering the stock market from realization of its objective of capital mobilization for economic growth. Keywords
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Stock Market Development and Economic Growth in Nigeria: A Time Series Study for the period 1980-2007

Stock Market Development and Economic Growth in Nigeria: A Time Series Study for the period 1980-2007

The Endogenous theory of growth can be traced to the work of Romer (1986), Lucas (1988), Rebelo (1991), Grossman and Helpman (1991) and Barro and Sala-i-Martin (1995), who over the years contributed to its growth and development. The endogenous growth models are models where long-running growth is treated as an endogenous variable and it is possible for output per- capita growth to occur without limits because the country in principle has an infinite capacity to create ideas. In an endogenous growth framework, however, government policy can affect rates of growth, since government policy actions, such as the provision of infrastructure, protection of intellectual property rights, regulations, taxation and the maintenance of law and order have the potential to influence the speed of creative activity. Governments, therefore, have great potential for either harm or good in these models. Thus, a country’s entire policy organisation, as well as its financial structures, regulatory regimes, market, taxes and macroeconomic distortions, may affect investment distribution and savings decisions, such as whether to alter long-term growth.
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Stock market development beyond the GFC: The case of V4 countries

Stock market development beyond the GFC: The case of V4 countries

The paper discusses Czech, Hungarian, Polish and Slovakian stock markets of geographically connected economics, and sheds some more light whether the V4 official stock market indi- ces have similarities in their behaviour, beyond the global financial crisis (GFC). To find out whether or not the official V4 stock indices probably move in the same direction, beyond the crisis, the correlation coefficients were computed. The assessment of the normality distribution of time series was considered by using the Roysten’s extension of Shapiro and Wilk-W, as well as graphical assessment by Q-Q plots and histograms. Annually, the statistically significant posi- tive correlations were detected in almost all pairs of V4 stock market indices, with exception of SAX index. For the overall post-crisis period (2010-2016), the positive statistically significant linkages were detected among all V4 official stock market indices, indicating the similar stock market behaviour of geographically connected economics. The limitations of the study as well as suggestions for the future research were mentioned, in order to explore the area into a com- prehensive work.
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Stock Market Development and Economic Growth: Empirical Evidence from Nigeria

Stock Market Development and Economic Growth: Empirical Evidence from Nigeria

The trace and maximum Eigenvalue statistics reject the null hypothesis of no cointegration and suggest that there is at least one cointegrating equation, at 5 percent level of significance. Hence, the cointegrating rank (r) is 1. The implication of this result is that, for although all the time series are individually nonstationary, I(1); that is, they have stochastic trends, their linear combination is stationary, I(0). The linear combination cancels out the stochastic trends in the six time series. In this case, I state that the six variables are cointegrated. Cointegration makes regressions involving I(1) variables to be meaningful and not spurious (Granger and Newbold, 1974).
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Stock Market Development and Economic Growth: Evidence from the European Union

Stock Market Development and Economic Growth: Evidence from the European Union

The results for the panel of non‑EA countries confirm the outcomes of previously employed statistics. We cannot reject the null hypothesis of no cointegration which means that there is no cointegration vector since the probability is higher than 5% significance level. Therefore we cannot employ the consequent panel VECM for panel of non‑EA countries, but the Granger causality test is applied to find out the direction of the relationship between variables. These results are in compliance with study by Caporale et al. (2015) who confirmed that the underdevelopment of stock and credit markets, with the consequent lack of financial depth, remains one of the main features of 10 new EU member countries.
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Determinants of Economic Growth in Hong Kong: The Role of Stock Market Development

Determinants of Economic Growth in Hong Kong: The Role of Stock Market Development

Atje and Jovanovic (1993), by using cross-growth regression framework in 40 countries covering the period 1980 to 1988, find that stock market exerts a large and positive effect on both the level and growth rate of economic activities. Levine and Zervos (1996) examine the association between stock market and economic growth in 41 countries, including Hong Kong, for the period 1976 to 1993. The results of their pooled cross-country, time-series regressions show that stock market development has a positive impact on the long-run economic growth. Later in another study, Levine and Zervos (1998) employ cross-country regression for 47 countries, including Hong Kong. They find that stock market size and liquidity have a positive influence on the current and future rates of economic growth. Arestis et al. (2001) find the positive influence of stock markets on economic growth to be stronger than the positive influence of banks. Minier (2003), based on the dataset of Levine and Zervos (1998), shows that stock market development is positively associated with economic growth in those countries with high levels of stock market capitalization such as Hong Kong. Rioja and Valev (2004), also share a similar view with Minier (2003) by showing that stock market development has a strong positive influence on economic growth in the more developed economies. Beck and Levine (2004) find similar evidence of a positive impact of stock markets on economic growth in their panel data study. Adjasi and Biekpe (2006) investigate the relationship of stock market development and economic growth in 14 African countries. They find that stock market development and economic growth are positively related. Akinlo and Akinlo (2009), using the ARDL bounds testing approach, find that stock market development exerts a positive impact on economic growth in seven sub-Saharan countries. Cooray (2010), using the stock market augmented model for a cross section of 35 developing countries, finds that size, liquidity and activities of stock market enhance economic growth. Recently studies such as Masoud and Hardaker (2012), and Ngare et al. (2014) also find that stock market development and economic growth are positively related.
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