Abstract
This paper analyses the macroeconomic drivers of stock market development in the Philippines during the period 2001Q4–2016Q4. In particular, the paper examines the impact of banking sector development, inflation rate, exchange rate, economic growth, trade openness and stock market liquidity on the development of the Philippine stock market. Theoretical and empirical literature reveals diverse views on the relationship between each determinant and stock market development. In addition, the Philippine stock market has experienced remarkable growth in recent decades. However, there is no similar study on this country in the literature. The paper, therefore, enriches the literature by investigating the macroeconomic drivers of stock market development in the Philippines using the ARDL bounds testing procedure. The results show that trade openness has had a negative impact on Philippine stock market development in the long run, whereas banking sector development and the exchange rate have had positive impacts on the development of the Philippine stock market in the short run. These findings are robust to alternative specifications of the model.
Highlights
IntroductionA number of studies show the importance of stock markets in promoting economic growth through various channels
What are the key macroeconomic drivers of stock market development? A number of studies show the importance of stock markets in promoting economic growth through various channels
Some argue that a higher inflation rate has a negative impact on stock market development, whereas others argue that the inflation rate can be positively associated with stock market returns in a high inflationary environment
Summary
A number of studies show the importance of stock markets in promoting economic growth through various channels. The macroeconomic factors being identified include economic development, banking sector development, inflation rate, exchange rate, foreign direct investment, trade openness and stock market liquidity. While there is a number of studies examining the factors leading to the stock market development, the existing literature shows that the relationship between each of the macroeconomic factors and stock market development is highly debatable. The literature reveals diverse views on the impact of macroeconomic factors on stock market development. Against this background, this paper contributes to the existing debate by investigating the impact of various macroeconomic factors on stock market development in the Philippines
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