Could the Stock Return be a Leading Indicator of the Economic Growth in the Depression? Analysis Based on Nonlinear Dynamic Panel Model

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This chapter examines whether the stock return can be a leading indicator of economic growth in the depression. A nonlinear dynamic panel data model is constructed with the use of the new current depth of recession (NCDR) indicator as the regime switched factor. Our findings show that in the recession period, the stock return can significantly explain the economic growth. As to the impact of a country’s development level and business cycle stages, the stock return can serve as a leading indicator of the economic growth in the Asian emerging markets in the recovery subperiod.