A cross-country and country-specific modelling of stock market performance, bank development and global equity index in emerging market economies: A case of BRICS countries.

Ebere Ume Kalu,Augustine C Arize,Florence Ifeoma Onaga,Okoro E U Okoro,Felix Chukwubuzo Alio,Stefan Cristian Gherghina

doi:10.1371/journal.pone.0240482

Ebere Ume Kalu, Augustine C Arize + Show 4 more

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https://doi.org/10.1371/journal.pone.0240482

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Abstract

This study investigated in cross-country and panel form the interactions of bank development, stock market development and global equity index, focusing on the BRICS countries covering the period 1990 to 2018. We found a bidirectional causation between bank development (CPSGDP) and stock market performance as proxied by the depth of the markets (MCAPGDP) in the BRICS countries. Cointegration was also found using the panel cointegration framework and the bounds test for the ARDL estimators. This largely proves that a long-run relationship of both direct and reverse nature exists between bank development and stock market performance. For the bank development and market performance models respectively, all the error-correction terms were found to be negatively significant, indicating that they both share dynamic profile and adjust appreciably to deviations from equilibrium between the short run and the long run. The global equity index showed that stock market development interacts more with the global financial environment than bank development in the BRICS countries. Our findings support the complementarity and coevolution hypothesis in the stock market and bank development nexus.

Highlights

Financial development is characterized by improvements in the financial system in terms of monitoring firms, effective corporate governance, management of risk, mobilization and pooling of savings, provision of information about investments and allocating capital, trading, diversification [1, 2]
We found that the average of the key bank development indicator (CPSGDP) for almost all the countries is less than the mean of the panel
An assortment of econometric techniques has been used to study the interaction among bank development, stock market performance and global equity index with a focus on the BRICS countries covering the period 1990 to 2018

Summary

Introduction

Financial development is characterized by improvements in the financial system in terms of monitoring firms, effective corporate governance, management of risk, mobilization and pooling of savings, provision of information about investments and allocating capital, trading, diversification [1, 2]. Following [3] financial development represents a mixture of financial depth and liquidity of the financial markets, the capability of firms and households to access financial services and the ability of financial institutions to provide services at affordable cost. A cross-country and country-specific modeling of stock market and bank development: A case of BRICS countries available at https://databank.worldbank.org/reports.

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