Abstract
This paper evaluates the effect of financial stability on stock return – green GDP and GDP relationships. The ARDL and quantile regression analysis are applied for this objective and the datasets are covering from 2002:Q1 to 2018:Q4. The empirical results reveal that financial stability has a positive and significant stimulating effect on the stock return-green GDP nexus. In other words, similar to institutional quality, financial stability provides an adequate ground to the stock return to have positive impact on green GDP. The more stable financial system in the country leads to investments and stock returns to be placed on activities that conserve the environment and hence increase in green GDP. Thus, the stability of the financial system plays a crucial role in ensuring the well-functioning of stock market and hence, promote green GDP. While the results for GDP indicated that stock return has insignificant impact on GDP in the direct or even the interaction effect with financial stability.
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