Observation of the disconnection between real and financial spheres: the case of the Tunisian stock exchange market during the period 1969-2008

Kamel Naoui Naoui

doi:10.5539/ijbm.v5n6p169

Abstract

The strong volatility that characterized financial markets all over the word, these last years, leaves to think the existence of a disparity between stock prices and their fundamental values, which gives us the presumption of a disconnection between the real sphere and the financial one (Binswanger ( 1999, 2000, 2004 )). The purpose of this paper, is to focus on this possible disconnection by using the cointegration tests, to detect a possible equilibrium relation between the stock exchange returns and the real economic activity growth (measured by the GDP). The period of study lies between 1969 and 2008, according to an annual frequency of two series: the real yields (Stock Market Index return) and of GDP growth rates (real economic sphere indicator). To settle on the dynamics of short and long term between the stock exchange returns and the GDP growth, we used the Vector Errors Correction Model (VECM). Our results corroborate the existence of the disconnection between the two financial and economic series. Key Words: Stock market return, financial bubbles, real sphere JEL classification: E30, E44, G10, G12

Highlights

Stock market prices fluctuations are certainly linked with economic ones, this fact was confirmed by the present financial and economic crisis of October 2008
The Vector Error Correction Model indicates that there is a strong reversion to the long-run target: in short run, the financial sphere is not supported by real basis
We can argue the disconnection between the two spheres. Such disconnection leads us to conclude that Tunisian stock market is not efficient and that stock prices do not depend on economic fundamentals, but they are the consequence of a speculative investor’s behavior

Summary

Introduction

Stock market prices fluctuations are certainly linked with economic ones, this fact was confirmed by the present financial and economic crisis of October 2008. Binswanger (2000, 2004) studied the role of real activities in speculative accidents explanation in the case of American market. Other authors like Binswanger (1999, 2000, 2004) and Shiller (2000), think that the stock price fluctuations can not be explained by fundamentals but they are the consequence of exogenous speculative bubbles or an irrational exuberance. He found no evidence that real economy would explain these disorders. This finding - opposed to the classic learning of the actualized future cash flow approach considered by Fama (1990) as a reflection of the www.ccsenet.org/ijbm real economy – lead Binswanger (2000, 2004) to explain this disconnection by the existence of speculative bubbles or fads

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Conclusion