Stock Market Development Research Articles

STOCK MARKET DEVELOPMENT IN NIGERIA: DO INSTITUTIONAL QUALITY AND FDI NET INFLOW MATTERS?

This study examines the effect of institutional quality and FDI net inflow on the stock market development in Nigeria for the period spanning 1996 to 2018. Symmetric method through autoregressive distributed lag model is used for the estimation of the relationship and cointegration. Stock market development is proxy by the annual stock market capitalization, while institutional quality is measured by the average of the composite index covering six categories; control of corruption, government effectiveness, political stability, regulatory quality, rule of law and finally, voice and accountability. Bound test confirms the validity of linear of variables under investigation. We found sufficient and significant evidence, affirming the role of institutional quality on stock market development both in the long run and short run. Similarly, FDI net inflow matters for the development of the stock market in the long run but not significant as expected while in the short it exerts negative and significant impact on the stock market development. This implies that foreign investors in form of portfolio investment will retard the development of the stock market in the short run if not properly managed.

Kontribusi Sektor Keuangan Syariah Terhadap Pertumbuhan Ekonomi di Indonesia

This paper aims to explain the relationship between the contribution of the financial sector which consists of the development of Islamic banks, the development of sukuk, the development of Islamic stocks, and the development of Islamic mutual funds to Indonesia's economic growth. This study uses quarterly time series data for the period between 2013Q1 – 2020Q4 and the analysis model used is the Vector Error Correlation Model (VECM) by carrying out unit root tests, cointegration tests, Granger causality tests, this study also uses the impulse Response Function, and Variance Decomposition. The results of this study indicate that the development of Islamic banking, the development of sukuk, the development of the Islamic stock market, and the development of Islamic mutual funds have a long-term influence on economic growth. while the development of the Islamic Banking and the development of the Islamic stock market have a short-term influence on economic growth. This research is expected to provide an overview of the condition of Islamic finance in Indonesia so that it can become a reference for relevant authorities in formulating or determining future policies for the development of Islamic finance.

Sentiment investor, exchange rates, geopolitical risk and developing stock market: evidence of co-movements in the time-frequency domain during RussiaUkraine war

PurposeThe aim of this paper is threefold: (1) to develop a new measure of investor sentiment rational (ISR) of developing countries by applying principal component analysis (PCA), (2) to investigate co-movements between the ten developing stock markets, the sentiment investor's, exchange rates and geopolitical risk (GPR) during Russian invasion of Ukraine in 2022, (3) to explore the key factors that might affect exchange market and capital market before and mainly during Russia–Ukraine war period.Design/methodology/approachThe wavelet approach and the multivariate wavelet coherence (MWC) are applied to detect the co-movements on daily data from August 2019 to December 2022. Value-at-risk (VaR) and conditional value-at-risk (CVaR) are used to assess the systemic risks of exchange rate market and stock market return in the developing market.FindingsResults of this study reveal (1) strong interdependence between GPR, investor sentiment rational (ISR), stock market index and exchange rate in short- and long-terms in most countries, as inferred from (WTC) analysis. (2) There is evidence of strong short-term co-movements between ISR and exchange rates, with ISR leading. (3) Multivariate coherency shows strong contributions of ISR and GPR index to stock market index and exchange rate returns. The findings signal the attractiveness of the Vietnamese dong, Malaysian ringgits and Tunisian dinar as a hedge for currency portfolios against GPR. The authors detect a positive connectedness in the short term between all pairs of the variables analyzed in most countries. (4) Both foreign exchange and equity markets are exposed to higher levels of systemic risk in the period of the Russian invasion of Ukraine.Originality/valueThis study provides information that supports investors, regulators and executive managers in developing countries. The impact of sentiment investor with GPR intensified the co-movements of stocks market and exchange market during 2021–2022, which overlaps with period of the Russian invasion of Ukraine.

The Impact of Information Asymmetry on Investment Behavior in the Stock Market

The stock market is the main component of the capital market and plays an important role in promoting the development of the national economy. Information asymmetry, as a typical issue in China’s stock market, triggers stock price fluctuations, increases stock market risks and largely influences investors’ investment behavior in stock market. Therefore, improving the information asymmetry problem is of great significance for the stable development of the stock market. This paper depends on the nature of information asymmetry, explores its specific manifestation in the stock market, and then analyses the process of information asymmetry issues on investment behavior. Studies indicate that information asymmetry leads to misdirected investment from three aspects, which include judgment on individual stock, assessment of the market value of the company and expectations of stock market developments, resulting in investor losses. Based on the above conclusions, this paper puts forward recommendations for improvement in terms of market regulation and the legal system: to improve the transparency of stock market transactions through the disclosure of information by regulators and companies. To complete the legislation of the stock market and establish strict punishment mechanisms to ease the problem of asymmetric information and maintain the stable operation of the stock market.

Determinants of Indonesian stock market development: Implementation of an ARDL bound testing approach

The Indonesian stock market is a growing financial industry that plays a strategic role in the growth of the country’s economy. Its development is affected by various factors. This study examined the impact of the exchange rate, gross domestic product (GDP), interest rates, inflation, foreign portfolio investment (FPI), and domestic political stability on stock market capitalization. Quarterly data between 2000:Q1 and 2020:Q4 are used. The autoregressive distributed lag (ARDL) method is applied to identify long-run relationships between variables. To understand how fast the system reaches equilibrium after a shock, the model also examines short-run relationships using an error correction model (ECM). The findings show that the impact of exchange rate, interest rate, and inflation on stock market capitalization is negative in the long run. While the GDP, FPI, and political stability are positive. Increment in the US Dollar against the Indonesian Rupiah, interest rate, and inflation by 1% respectively, caused stock market capitalization to fall by 1.31%, 0.06%, and 0.04%. A rise in GDP, FPI, and political stability by 1% respectively, increases the stock market’s value by 1.17%, 1.08%, and 1.28%. In the short run, the coefficient of ECM indicates the speed of adjustment of the system: the occurrence of the shock to reach long-run equilibrium is quick enough, at 63.8% each quarter. The study recommends governments evaluate the impact of these factors when formulating monetary policies, promote economic growth, and continuously implement good governance, thus supporting stock market development.

The Interplay of Firm, Industry, and Macroeconomic Factors in the Stock Returns of the Non-Financial Sector in Nepal

This research paper focused on the impact of firm-specific, industry-specific, and macroeconomic variables as it examined the dynamics of stock returns in the Nepalese non-financial sector. The study incorporated a comprehensive analysis of existing literature, methodology, and empirical findings from various studies conducted in Nepal and other countries. Five hydropower companies were the sample of the study. Pearson correlation result showed a negative correlation with a strong inverse relationship between the tangibility of a firm's assets and its stock returns. A significant negative correlation with inflation indicates a moderate inverse relationship between the inflation rate and stock returns. Regression results showed that companies' asset tangibility significantly impacts stock return. Firm size and gross domestic product did not have a statistically significant effect on stock return. However, the inflation rate and exchange rate significantly impacted stock return. Based on the study's findings, policymakers can consider implementing measures to promote a conducive environment for stock market development. This may include improving corporate governance frameworks, enhancing transparency and disclosure requirements, facilitating investor education programs, and ensuring macroeconomic stability through sound monetary and fiscal policies.

Financial Depth and Stock Returns in Sub-Saharan Africa: A Three-Country Comparative Study

This study examined the relationship between financial depth indicators and the stock returns in three selected Sub-Saharan African (SSA) countries from 1990-2019 comparatively. Specifically, the study investigated the effect of financial depth variables (ratios of market capitalization to the Gross Domestic Product (GDP); monetary/liquidity in circulation (M3) to the GDP; lending/savings rate spread, financial sector contribution to GDP; credit to private sector to GDP; Central Bank assets to GDP and commercial banks liabilities to GDP) on the stock market returns of the selected Anglophone SSA countries (Kenya, Nigeria and South Africa). The study employed descriptive statistics, correlations, Johansen co-integration, vector autoregressive (VAR) and Granger causality to analyze the data of selected countries and compare the results to identify the different natures of effects of financial depth on stock returns. Results revealed, that, to a large extent, financial depth variables promote stock market growth in Kenya but there was no evidence that the former significantly affected the latter in Nigeria. However, in South Africa, financial depth variables have significant negative effect on stock returns, at least, in the short-run. These results imply that, comparatively, there are marked differences among the three countries with respect to the effect of financial depth on stock returns. Nevertheless, there is evidence of causal relationship between the variables in the three countries. The study concluded that financial depth has significant effects on stock returns in Kenya and South Africa but not in Nigeria. It is therefore recommended that monetary authorities should develop strategies that will minimize monetary policy lags which delay the transmission of policy effects on the target in the short run. Also, governments and the Central Banks of the countries under study, especially Nigeria and South Africa should re-appraise their financial depth efforts vis-à-vis stock market development.

Geopolitical risk and stock market development

While previous literature has documented adverse impacts on financial markets in the days following individual acts of terrorism or conflict-related events, we consider the more general, ongoing uncertainty those events contribute to: geopolitical risk (GPR). Using a sample of 37 countries spanning 1975–2019, we provide evidence of a strong, negative relationship between GPR and stock market development. To support our main results we run a series of robustness and endogeneity checks, in the process demonstrating that the impact of GPR is distinct from other macroeconomic risks such as economic policy uncertainty. We also consider several dimensions of heterogeneity among countries that cause the effects of GPR on stock market development to vary, providing more insight into those effects. In particular, we find that GPR’s negative impact is stronger for those in North America and Europe as compared to Asia. We also find that GPR’s effect is stronger for economies with higher levels of investment, which is consistent with our theory of investment as a mechanism for GPR’s influence on stock market development.

Exchange Rate Volatility and Nigerian Stock Market Development

Purpose: The study aims to evaluate the impact of exchange rate volatility on the indicators of stock market, such as the returns, capitalization, liquidity, transaction volume, based on the Nigerian evidence. Theoretical framework: The paper considers extant model of exchange rate-stock market interactions. Because the diversity of the market is important the paper follows suggestions by El-Wassal (2013) to examine variety of stock market indicators in order to offer accurate depiction of how the stock market drives exchange rate volatility. Design/Methodology/Approach: The study employs a simple static regression model of stock market indicators with autoregressive adjustment component which absorb autocorrelation. The models are tested on annual data (1985-2020). Findings: The study finds that the exchange rate volatility has negative impact on stock market development - returns, capitalization and volume. The paper reveals further that other correlated controls factors impinge different impacts on the stock market indicators. Research, Practical & Social implications: One implication of the finding is that the volatility may discourage investors, reduce firm performance, and lead to reduction on the returns of firm shares. Policy makers should put in place growth-inducing infrastructural investments to make the business environment more conducive to attract foreign capital, while also positioning the capital market with several initiatives to increase trading activities. Originality/Value: The connection between the foreign exchange and financial markets is of policy importance. Although the focus is on the Nigerian markets, the evidence could be extended to other African and global markets, to serve as guide to foreign investors.

Nexus between Monetary Freedom, Political Stability and Exchange Rate with Sustainable Stock Market Development in Pakistan: A Comparative Analysis by ARDL and NARDL

This study scrutinizes both symmetric and asymmetric impact of monetary freedom (MF) on the sustainable stock market development (SMD) in Pakistan, in the presence of political stability and foreign exchange rate. The study uses the time series data for the period of 1992 to 2022, the study applies Non-linear Auto-regressive Distributed Lag (NARDL) and ARDL Bounds Testing for comparative analysis. Monetary freedom with sound political stability and stable foreign exchange rate do Granger Cause and significant correlation with the SMD of Pakistan. The results from ARDL Bound Testing show that MF and exchange rate has highly significant long-run impact on the SMD with coefficient values of 4.64 and 3.32. The Positive asymmetric cumulative dynamic multipliers (ACDMs) of MF have highly significant impact on SMD. Political stability has been a Positive Function of its ACDMs, while exchange rate has been a Negative Function of its respective ACDMs. The impact of exchange rate is highly significant with its Negative ACDMs coefficients of 17.42 and 16.76, denoting a long-lasting impact on the sustainable economic growth of Pakistan by strengthening the pace of stock market development. This comparative study will add revised practical credence to the existing literature on autoregressive models and will facilitate modified and improved policy-making at operational and strategic level to achieve decent economic growth under sustainable development goals (SDG).

The varying impact of financial development on the environmental footprint due to geopolitical risk: The difference between high- and middle-income countries

The global debate among policy makers and environmentalists concerns how environmental degradation can be minimized without impeding economic growth. Because of intensification of geopolitical uncertainty, achieving this balance has become difficult. To contribute to breaking this “deadlock”, our research explores the interlinkage among financial development, geopolitical risk, and the environmental footprint in 40 high- and middle-income countries from 2000 to 2018. The estimated results obtained from a novel quantile regression show the heterogeneous environmental impacts of bank credit, the stock market, and geopolitical uncertainty across the quantile distribution of the environmental footprint and two country groups. Although the credit market tends to reduce the environmental footprint in high-income countries with moderate environmental quality, it exacerbates environmental degradation in middle-income countries. Similarly, stock market development improves the environment in high-income countries but harms it in middle-income countries that have extremely good and poor environmental quality. Geopolitical risk is found to escalate environmental degradation in both high- and middle-income countries. In addition, the empirical outcomes confirm the moderating role of geopolitical risk on the linkage between financial development and environmental footprint. In high-income countries, escalating geopolitical risk has two contrasting effects on the environmental impact of financial development. Whereas high geopolitical uncertainty reduces the harmful impact of bank credit on the environment, it magnifies the harmful impact of the stock market. In middle-income countries, high geopolitical risk reduces the harmful impact of both bank credit and the stock market on environmental sustainability. These complex relationships offer new implications for policy makers in the transition to a sustainable environment.

Macroeconomic Variables and Stock Market Development in Africa: Evidence from Nigeria

This study examines the macroeconomic determinants of stock market development in the Nigerian economy. This was aimed at ascertaining how INF representing real interest rate, GDP representing gross domestic product per capita, and BMS representing broad money supply has stimulate the stock market development in Nigeria. Historical data was collated and estimated employing the ARDL form of Ordinary Least Squares (OLS) technique. The empirical results indicate that only inflation had a negative and significant impacts on stock market development while real output and money supply exerted positive but insignificant impacts. On the basis of the findings of this study, the following recommendations are made: The monetary authorities have to regularly review their monetary policy direction to bring inflation lower than it is; Regulatory authorities and policy makers should ensure that there is general stability in money supply and exchange rates, while trying to put the inflationary trends under control and at the same time maintain a stable interest rate regime in the economy in order to achieve improvements in stock market performance to bring about desired economic growth and national development.

Wavelet-Based Analysis of the Comovement Between Exchange Rate and Stock Returns in Sacu Countries

ABSTRACT: The Southern African Customs Union is the oldest customs union in the world and the member states form a currency union with the South African Rand being the regional currency anchor. Therefore, currency movements amongst SACU member are dependent on the developments on the Rand which, in turn, can affect stock market development in the region. We examine the time-frequency relationship between exchange rates and stock market returns in SACU countries using continuous wavelet transforms. Our empirical analysis is two-staged. Firstly, we employ wavelet power spectrum to examine the time-frequency properties of the individual series. Secondly, we use wavelet coherence analysis and phase dynamics to examine the synchronization between the variables in a time-frequency space. Our findings show stronger (weaker) exchange rate-stock returns relations are found during periods of higher (lower) inflation whereas we observe a stronger (weaker) relationship during periods of lower interest rate environment. Moreover, we find more significant long-run relationships for countries with more independent monetary policy (South Africa and Botswana) whereas these relations are more prominent over the short-run for countries with pegged exchange rates (Eswatini and Namibia). We also observe that periods of oil and currency shocks impact the exchange rate-stock returns relationship in SACU countries with pegged exchange rates (Eswatini and Namibia). Our findings bear important implications for different stakeholders. For instance, this study has implications for exchange rate policy as it addresses the issue of whether the exchange rate can be used to improve market performance or exchange rate developments spillover into the stock market. Furthermore, corporate managers and stock market participants would be interested in our findings as it identifies periods of market inefficiency when exchange rates can be used to beat the stock market.

ANALYSIS OF THE DYNAMICS OF EUROPE STOCK MARKETS DEVELOPMENT

The article proposes a complex of economic and mathematical models of assessment, analysis, and forecasting of the world stock indices development state for effective management of investment flows. The modern concept and strategy of European countries’ stock market development were considered, and the existing methods of diagnosing the stock market development level were analyzed. ARIMA models were built and spectral analysis of the main world indices was carried out. The possible trends in the stock indices development for the future period were analyzed using predictive models. It makes it possible to determine directions for improving the stock market efficiency and investment strategies in modern conditions.The proposed set of models for evaluation, analysis, and forecasting of the world stock indices state can be used to test various trading strategies and to test various hypotheses in relation to the entire stock portfolio of a particular company or to one stock index. The results of the research can be used in the development of theoretical provisions and methodological tools for evaluating the global stock market effectiveness in modern conditions and development trends in local markets.

Macroeconomic Determinants of Stock Market Development: A Systematic Literature Review

The objective of this study is to examine the various macroeconomic factors that influence the growth of the stock market, as well as to explore the techniques employed to establish a correlation between them. For this research, literature was sourced from databases such as Ebsco host, Web of Science, and JSTOR using the search terms "Macroeconomic determinants" and "Stock market". The data obtained was then analyzed using the PRISMA statement and presented in the report accordingly.The study revealed that economic growth has a positive effect on the growth of the stock market, while an increase in the inflation rate has a negative impact. The impact of trade openness, foreign investment, exchange rate, interest rate, and banking sector development was found to be mixed. The correlation between these macroeconomic determinants and stock market development was established by utilizing econometric techniques, including GARCH and ARCH models. This research aims to provide an understanding of the relationship between macroeconomic factors and the development of the stock market, as well as the impact of these factors. However, more in-depth exploration of this topic is needed, including the examination of additional databases and analysis on a country and sectoral level. This research will assist scholars and educators within the fields of economics and finance to gain insight into the macroeconomic factors that influence the growth of the stock market. As far as the researcher is aware, no systematic review using the PRISMA framework has been conducted on the relationship between "macroeconomic determinants" and "stock market development

Transaction costs of the market impact of share trading: digital manoeuvring technologies

In the conditions of the new economic reality caused by the consequences of large-scale military aggression, increasing responsibility and trust between society and stock market participants is an essential resource for the development of financial and credit relations in Ukraine. Digitization of economic processes contributes to the development of applied developments and technology transfer, encouraging stock market participants to shape their transaction costs, taking into account the capabilities of the Government BI analytical system, BigData institutes, and derivatives. The article aims to develop the theoretical and applied principles of transaction costs of the market influence of share trading and the regulatory transformation of information provision. It is argued that the policy of economic recovery requires the application of the postulates of the theory of reindustrialization, the Growth Strategy Trilemma, and the integration of the theory of transaction costs with the path dependency theory for their consolidation in conditions of uncertainty. It was established that the industrial sector should contribute to the development of industrial corporations, which are essential for the branches of the national economy, to achieve competitive advantages of manufactured products and to improve the technological structure of exports. It was established that in the conditions of digitalization, public trust must be formed between the government, business, and science to overcome the technical autonomy of developers. The formation of transaction costs of the market influence of share trading is studied from the functional method of revealing the hierarchy, duration, and differentiation of the buying and selling processes. The classification of economic, organizational-management, and technical-technological dimensions of the stock market development is considered. Forecasting of trades in financial instruments at operators of organized capital markets indicates positive trends for 2023. The digitization of business processes facilitates the access of potential investors to mobilize the internal reinvestment potential of corporations. It provides open access to both integrated database platforms, which forecast cash flows and recognize the need for additional issuance of shares. Methodological and applied approaches to developing the market microstructure, integration, and dependence on regulatory transformations are characterized. It was determined that the development of the digital economy contributes to the creation of IT companies and innovative companies of small and medium businesses, which cannot be included in quotation lists of high levels. Therefore, specialized trading platforms, segments, and markets for small companies are promising for investment. It has been established that transaction costs are aimed at establishing communications, developing partner contacts, and concluding agreements. Therefore, developing professional standards of capital market participants by the roadmap for integrating Ukraine into the Single Digital Market of the European Union is a promising prospect. Keywords: stock trading, stock market, market microstructure, regulatory transformations, trading platform, digital technologies, financial and credit institutions, transaction costs, liquidity.

Impact on Fast Growing Large Scale Industries due to the Stock Market Policies – An Empirical Research

India is one of the fastest-growing economies in the world and has made significant strides in developing its financial markets over the past few decades. The paper concludes by highlighting the key findings and implications of the study. It suggests that the stock exchange can play a critical role in promoting economic development in emerging markets by providing a platform for capital formation and investment. However, the development of the stock market must be supported by a conducive policy environment, strong regulatory framework, and investor protection mechanisms. The study also highlights the need for further research on the relationship between stock market development and economic growth in emerging markets, particularly in the context of the on-going financial globalization and integration. The stock exchange is a critical component of any economy, and its role in the economic development of emerging markets is particularly significant. An emerging market is a country that is in the process of transitioning from a developing economy to a developed economy. These markets are often characterized by high growth potential, but also high risk due to their volatile economies. It plays a critical role in the development of emerging markets by providing a platform for companies to raise capital, facilitating investment, providing liquidity, and improving corporate governance. One of the primary ways in which the stock exchange contributes to economic development is by mobilizing capital. Companies can raise capital by issuing stocks and bonds, which allows them to finance their projects and investments. This, in turn, leads to economic growth.

The impact of foreign direct investment on stock market growth: Evidence from Pakistan

This paper aims to investigate the impact of foreign direct investment (FDI) on stock market growth in Pakistan from 1990 to 2020. The study aims to evaluate the impact of FDI on stock market growth in both the short and long term, as well as examine the impact of economic growth on stock market growth. The study uses an Autoregressive Distributed Lag (ARDL) model to analyze the long-term impacts of FDI on the stock market and an Error Correction Model (ECM) to evaluate the short-term impact. The study reveals a substantively significant and positive influence of Foreign Direct Investment (FDI) on the growth of the stock market, observed from both a short-term and long-term perspective. Gross National Income (GNI) and Exchange Rate (ER) also have a significant bearing on stock market growth, while Interest Rate (IR) is found to have a negative impact but is statistically insignificant. The findings also confirm the impact of economic growth on stock market development, establishing a triangular relationship between FDI, Economic Growth, and Stock Market Growth. The study concludes that FDI has a significant positive impact on stock market growth in Pakistan in both the short and long term. It further suggests that macroeconomic policies should be developed and a tax-free market environment should be created to stimulate and encourage foreign direct investment for economic growth and stock market growth. The study's policy implications suggest that government officials should implement viable macroeconomic policies and create a tax-free market environment to encourage foreign direct investment for economic and stock market growth in Pakistan.

Foreign Direct Investments and Stock Market Development in Sub-Saharan Africa: Does Regulatory Quality Moderate?

The association between foreign direct investment (FDI) and stock market development (SMD) is very crucial given the role of liquidity in the SMD process. However, this association can be affected by regulatory quality. Through the Calderon-Rossell model, this article explored the direct and conditional effects of FDI on SMD in five sub-Saharan African countries (Ghana, Mauritius, Namibia, Nigeria and South Africa) from 1996 to 2020. Regulatory quality was used as a moderator of the association between FDI and SMD. The pooled mean group strategy of the panel Auto Regressive Distributed Lag was implemented and findings suggested that FDI is positively and significantly related to SMD in the long-run. Furthermore, the conditional effect of regulatory quality on the association between FDI and SMD could not be established. This article has policy implications and contributed to the Calderon-Rossell model theoretical debate that liquidity improves SMD.

Stock market development and capital formation in selected African economies

PurposeThis study aims to explore the possibility that securities markets in selected African countries of Egypt, Kenya, Nigeria and South Africa play a significant role in capital accumulation using panel data analysis. This is done by exploring the relationship between gross fixed capital formation on the one hand and financial market development indicators on the other hand. Thus, the study aims to examine if stock market size and liquidity are determinants of capital accumulation.Design/methodology/approachThe analysis is based on annual times series from 1991 through 2017 spanning four African stock markets. The analysis utilizes the fixed-effect and random-effect econometric models. The Durbin–Wu–Hausman test is used to choose between the two models.FindingsThe key results indicate that stock market capitalization is a positive determinant of gross fixed capital formation. The market value traded and turnover have no relationship with capital formation. Therefore, the role of stock African stock markets in promoting capital accumulation and, subsequently, industrial growth in Africa is seriously questioned.Originality/valueOnly a handful of studies have examined the role of the African securities market in promoting capital accumulation. This study is unique in which it focuses on the leading stock markets in the four corners of Africa. The markets are from Egypt in the north, South Africa from the south, Nigeria from the west and Kenya from the east. These four markets account for a significant segment of all African markets.