Stock Market Development Indicators Research Articles

Examining the impact of the stock market development on Economic growth- KSA Tadawul.

The relationship between stock market development and economic growth has been a subject of debate, with arguments centered on the impact of a well-functioning stock market on economic growth. This study argues that economic growth is influenced by stock market development and economic reform indicators, while controlling for other determinants of growth. The research employs a comprehensive theoretical framework linking stock market development to economic growth, and it specifically focuses on the Tadawul stock market in Saudi Arabia. The empirical analysis, using sophisticated panel data econometric techniques, reveals a significant positive correlation between Tadawul stock market and economic growth, particularly in the oil sector. This suggests that the Tadawul stock market plays a crucial role in influencing and contributing to economic growth, especially within the context of the oil industry.

Stock Market Development and Economic Growth of Nepal

The development of Nepal’s stock market and economic growth are examined in this study since several factors, including stock market development, affect economic growth. The stock market development indicators are market capitalisation, trading turnover, NEPSE index, gross capital formation, and gross national savings. This research is based on secondary data (1995 to 2022) extracted from the Quarterly Economic Bulletin of Nepal Rastra Bank in mid-July 2023. The econometric methods such as the Johnson cointegration test, Granger causality test, and VAR model were used to assess the nexus between the stock market development and economic growth in Nepal. Long-term cointegration has been observed between the stock market development indicators such as gross national savings, market capitalisation, gross capital formation, trading turnover, stock market index, and economic growth. Likewise, economic growth and stock market development are shown to be causally related in a unidirectional manner by the Granger causality test. It concludes that stock market development matters for economic growth in the short and long run. The regulatory authority may adopt an appropriate policy for sustained growth of the stock market through (i) improving disclosure and transparency, (ii) enhancing investor awareness and education, (iii) safeguarding the interest of shareholders, (iv) diversifying the trading opportunities, and (v) maintaining the macroeconomic stability.

Historical Development of Frontier Stock Markets in Sub-Saharan Africa

Purpose: The purpose of this research is to review and compare the development of the three major frontier stock markets in Sub-Saharan Africa over time. The study provides some narrative around the historical development of each market as well as a theoretical backdrop for stock market development studies. Theoretical framework: The adaptive market hypothesis was used as the theoretical backdrop for the study. The adaptive market suggests that stock markets develop in an evolutionary manner (similar to natural selection). This evolution of stock market development is influenced by changes in investors’ behavior and regulatory standards. Design/methodology/approach: Data was collected from 1993 to 2020 on the IMF market efficiency score, the value of stocks traded, aggregate market capitalization, and the number of listed companies for the sample markets. The study used descriptive statistics and trend analysis to discuss and compare the stock market development indicators across the different selected frontier markets. Findings: The study discovered an improvement in stock market performance across the sample period. The Johannesburg Stock Exchange was found to be the most developed of the three stock exchanges. The Nigerian Stock Exchange was second while the Nairobi Stock Exchange was third. Some factors that erode the performance of these stock markets were also discussed. The practical and social implications: The sample stock markets are the major frontier markets, and so are often the first stop for foreign investors that want to penetrate the Sub-Saharan African markets. The performance of these markets often determines the level of foreign direct investment (FDI) and foreign portfolio investment (FPI) that flow into Africa. Originality/ Value: Few studies have investigated the performance of stock markets in Sub-Saharan Africa. Also, the few studies that investigate the performance of these markets rarely proceed to discuss the market-wide factors that erode the performance of these markets compared to those of developed economies. Some factors like the size of the economy, low financial literacy, misplaced government policies, poor investment culture, buy-and-hold-tight attitude, and high transaction costs were identified and discussed.

The financial Kuznets curve of energy consumption: Global evidence

In this study, we explore the simultaneous existence of a Financial Kuznets Curve -an inverted U-shape relation between financial development and energy consumption- and Income Kuznets Curve -an inverted U-shape relation between income and energy consumption-for a panel of 85 countries. In terms of the financial Kuznets relation, we compare the effects of three stock market development indicators (i.e., stock market capitalization ratio, stock market value traded, and stock market turnover ratio) with the counterpart effects of three credit market indicators (i.e., domestic credit provided by the banking sector, liquid liabilities, and broad money supply. Drawing on the existing literature, we control for changes in country openness, natural resource endowments, and inflation by applying four methods in parallel: the parametric analysis (dynamic system GMM), and the non-parametric (panel quantile regression) as a robustness check. The results for both Kuznets curves are robust to all four methods. They indicate a simultaneous existence of an income Kuznets curve and a Financial Kuznets Curve when the indicators of the stock market development are considered. However, no Financial Kuznets Curve exists with respect to the credit markets’ development. When the credit markets are considered, only the income Kuznets curve is detected. The existence of a relationship between the stock market development and energy consumption has implications for national energy policies. Stock markets should be used actively for the promotion and funding of “green finance” industrial projects, encouraging innovation and new technologies for cleaner production. Our findings are also useful for crafting different financial development policies for countries that are seeking to encourage or discourage energy consumption.

How Do Stock Market Development and Competitiveness Affect Equity Risk Premium? Implications from World Economies

Purpose: This paper examines the interrelatedness between countries’ stock market development and competitiveness and the equity risk premium (hereinafter, ERP). In addition, this paper examines the length of time that stock market development takes to have an impact of ERP. The results offer an empirical guide to stock market authorities about the robust factors that help reduce ERP, which, in turn, encourages raising equity financing. Design/methodology: The dataset includes 59 countries that are listed in the market potential index (hereinafter, MPI) covering the years 1996 to 2020. The MPI provides comprehensive macroeconomic factors that can be used for examining stock market competitiveness and, thus, its potential effects on ERP. Findings: The results of the robustness test show that (a) a negative and significant association exists between the turnover ratio of domestic shares to stocks traded and ERP, (b) the increases in stock market competitiveness are associated with increases in the number of listed companies, (c) lowly ranked countries in the MPI are associated with increasing ERP, and (d) in terms of the interaction between duration of stock market development and competitiveness, the relatively competitive stock markets take 2–6 years for stock market development indicators to have a significant effect on ERP. Originality: This paper offers two main contributions to the related literature. The first contribution is to offer a measure of stock market competitiveness using indicators of stock market development. Therefore, robust indicators of stock market development can be reached. The second contribution is to offer empirical results about the length of time (referred to in this paper as duration) required for the indicators of stock market development to have a favorable effect on ERP.

Cointegration between Stock Market and Economic Growth: Evidence From Nepal

This paper examines the linkage between stock market development and economic growth in the context of Nepal using 33 annual observations from Mid-July 1988 to 2020 on economic and financial time series of real GDP, market capitalization and annual turnover. The study employs Engle-Granger(1987) and Johansen’s (1988) cointegration test to examine the cointegration between economic growth proxied by log of real GDP and stock market development indicators, namely stock market size and liquidity, proxied by log of market capitalization and log of annual turnover, respectively. The results of cointegration show that both stock market size and liquidity can predict economic growth in Nepal. The results of cointegration test from both Engle-Granger procedures and Johansen’s method suggests that economic growth is cointegrated with both stock market size and stock market liquidity, and hence they are interrelated with each other in the long run. The basic implication of study finding is that both stock market size and liquidity significantly predict the economic growth in Nepal over the sample period and hence there is a need for promoting secondary market trading both in terms of size and liquidity.

On the asymmetric relationship between stock market development, energy efficiency and environmental quality: A nonlinear analysis

It has been widely documented in the literature that financial development drives up the impact of CO2 emissions through increases in real economic activities and the consumption of polluting fossil fuel energy. However, when dealing with stock market development, such upward effects on economic growth, energy efficiency, and carbon emissions seems to give away to a positive impact especially in emerging markets. This paper contributes to this debate by exploring both the symmetric and asymmetric responses of CO2 emission to changes in stock market development indicators. Using both the panel linear and nonlinear ARDL, our results demonstrate the asymmetric effects of stock market development indicator son carbon emissions in the context of emerging markets. In particular, the long-run elasticities results suggest that positive and negative shocks on stock market indicator decreases environmental quality by increasing carbon emissions. Based on these empirical findings, this study offers some crucial policy implications. Especially, policy makers should implement strong environmental policies in emerging markets economies to reduce carbon emissions of industrial companies without significantly affecting the development of financial markets.

Contribution of Stock Market Development on Economic Growth of Nepal

The paper is to analyze the contribution of stock market development on economic growth of Nepal. A well-developed stock market could promote the volume of domestic savings, saving mobilization, capital formation, and efficient allocation of capital in productive sectors of the economy that ultimately helps for increasing income, output, and employment and thereby enhance the economic growth of the nation. The study followed quantitative analysis and deductive method by using secondary data of 27 years from 1994 to 2021. It used ARDL model, co-integration test, bound test, CUSUM, and CUSUMQ test for data analysis. It employs the real gross domestic product as a proxy variable for economic growth while broad money supply, market capitalization, stock market turnover, NEPSE index, and listed companies are taken as the indicator of stock market development. The study found that there is a significant contribution of broad money supply, market capitalization and NEPSE index to real GDP. But, there is a weak contribution of stock market turnover to real GDP that indicates a liquidity problem in Nepalese stock market. It concludes that stock market development has a significant contribution for economic growth in Nepal. Hence, it is suggested that policymakers should think about the stock market development for the economic growth of Nepal.

FINANCIAL MARKET DEVELOPMENT AND ECONOMIC GROWTH: EVIDENCE FROM ASEAN AND CEE REGION

Developed financial markets act as a catalyst in promoting greater economic growth for nations. Healthy financial market growth among nations is found to improve good job creations and aid economic growth in line with Sustainable Development Goal 8. Developing economies could emulate the growth principles from developed economies on financial market development. This paper analyzes the impact of financial market development and economic growth in middle-income and high-income countries of ASEAN and CEE countries from 2002 to 2019. Annual time series data were sourced from World Bank using stock market development indicators. The panel data based on the random effect model was employed to determine the correlation between stock market development and economic growth. The findings of the study reveal that market capitalization and total stock traded from the total value positively impact economic growth. In contrast, the relationship between the stock traded of domestic share and GDP growth is negative. To foster greater economic growth, countries and policymakers need to focus on developing the financial market sector and maintaining the macroeconomic stability.

On the asymmetric relationship between stock market development, energy efficiency and environmental quality: A nonlinear analysis

It has been widely documented in the literature that financial development drives up the impact of CO2 emissions through increases in real economic activities and the consumption of polluting fossil fuel energy. However, when dealing with stock market development, such upward effects on economic growth, energy efficiency, and carbon emissions seems to give away to a positive impact especially in emerging markets. This paper contributes to this debate by exploring both the symmetric and asymmetric responses of CO2 emission to changes in stock market development indicators. In particular, using both the panel linear and nonlinear ARDL, our results demonstrate the asymmetric effects of stock market development indicators on carbon emissions in the context of emerging markets. In particular, the long-run elasticities results suggest that positive and negative shocks on stock market indicator decreases environ- mental quality by increasing carbon emissions. Based on these empirical findings, this study offers some crucial policy implications

Theoretical Aspects of the Relationship between Monetary Indicators and Stock Market Indices

The purpose of the current research is to conduct a system theoretical and methodological analysis of the relationship between monetary indicators and stock market indices identifying effective monetary policy channels that influence the stock market development, as well as to describe the key approaches to estimation of the respective relationship. The research relies on the following methods: system analysis and synthesis, generalization, systematization, and data grouping, as well as scientific abstraction and concretization. Study results. The conducted analysis made it possible to substantiate the relationship between monetary and stock market development indicators. In addition, we identified the key factors influencing the significance and direction of the central banks’ actions on the stock market indices’ dynamics. We also summarized and systematized the key empirical approaches used by Ukrainian and foreign scientists to analyze the respective relationship. The results of this research paper can be used for further empirical analysis of the relationship between monetary indicators and stock market indices for different types of economies by using economic and mathematical modelling to investigate the effective monetary policy instruments that stimulate stock markets development. Conclusions. Significant relationship between monetary policy and stock market indices was confirmed, mainly for countries with a developed stock markets infrastructure and efficient actions of monetary policy makers. Based on our analysis, the key factors influencing the efficiency of monetary policy include the monetary policy type, the business cycle stage, the level of market capitalization, the structure and amount of firm financing, the industry and firm-specific characteristics, the market conditions and trends. We also identified that in similar research the vector autoregressive models (VAR) have been used, including the vector error-correction models. A further empirical study of the relationship between monetary policy and stock markets, considering theoretical findings summarized in our research, will help to better understand the monetary policy transmission mechanism as well as respective reactions of stock market indicators. JEL classification: E52, E59 Manuscript received 29.03.2020

Financial Markets Development and Financing Choice of Firms: New Evidence from Asia

This paper investigates the effects of financial markets development on the financing choice of firms in developing and developed Asian market economies. The panel data regression models were used for a mean total of 6506 non-financial listed companies during 1995–2016 for 12 Asian economics. The estimated econometric models included short-term, long-term and total debt-equity ratios as dependent variables which were regressed on financial markets development variables (such as banking sector development and stock market development indicators) along with macroeconomic variables (such as inflation, GDP growth, FDI and firm-specific variables (such as ratio of total assets to GDP, ratio of dividends to total assets and ratio of net sales to net fixed assets) as control variables. Also, financing choice of firms in developed and developing stock markets was estimated by splitting the sample into subsamples of developing and developed stock markets. The financial development indicators such as domestic credit to private sector by banks and stock market capitalization exhibited contrasting differences between the selected developing and developed Asian economies. The econometric results indicated that the banking sector and stock market development indicators significantly have opposite effects on the financing choice of the selected firms: banking variable is associated with a rise in the debt-equity ratio whereas stock market variable is associated with a fall in leverage ratio. The econometric effects of stock market development on firms financing choices in developing and developed stock markets showed a remarkable divergence. The evidence indicated that the estimated coefficient of the banking sector indicator in the developed stock market subsample was consistently negative for all the three leverage ratios whereas the coefficient in the developing stock market subsample was positive and significant. The important conclusion of the study is that though banking sector and stock market play different roles are however, complementary to each other suggesting that the policymakers should aim to develop banking sector and stock market simultaneously which will help firms to design their optimal financing choices.

Financial development and economic growth: panel evidence from BRICS

Purpose The purpose of this paper is to examine the relationship between financial development and economic growth for five major emerging economies: Brazil, Russia, India, China and South (BRICS) during 1993 to 2014 using banking sector and stock market development indicators. Design/methodology/approach To begin with, the study first examined some of the principal indicators of financial development and macroeconomic variables of the selected economies. Next, using generalized method of moment system estimation (SYS-GMM), the relationship between financial development and growth is investigated. The banking sector development indicators used in the study include size of the financial intermediaries, credit to deposit ratio (CDR) and domestic credit to private sector (CPS), whereas the stock market development indicators are value of shares traded and turnover ratio. Also, some macroeconomic control variables such as inflation, exports and the enrolment in secondary education were used. Findings The examination of the principal indicators of financial development and macroeconomic variables have shown considerable differences between the selected economies. Results from the dynamic one-step SYS-GMM estimates confirm that in presence of turnover ratio, all the selected banking development indicators such as size of financial intermediaries, CDR and CPS are positively significantly determining economic growth. Similarly, in presence of all the selected banking sector development indicators, value of shares traded is found to be positively significantly associated with economic growth. However, the same is not true when turnover ratio is regressed in presence of banking sector variables. Overall, the evidence suggests that banking sector development and stock market development indicators are complementary to each other in stimulating economic growth. Practical implications A positive association between financial development and growth indicates that the policymakers should take necessary measures toward simultaneous development of both banking sector as well as stock market for inducing growth. Originality/value The present paper attempts to examine the relationship between financial development and growth using both banking sector and stock market development indicators which has not been attempted before for BRICS. Also, most of the existing studies are found in case of developed economies. This paper tries to fill this void by studying five major emerging economies.

Ensuring Trading Strategies Profitability with Technical Analysis Tools and Computer Technology

The paper is devoted to the study of the tools of technical analysis using computer technology. It analyzes the current conditions and the essence of the stock market, the basis of its functioning. The advantages of technical analysis are presented including accessibility and relative simplicity of its use. It analyzes the main indicators of the world stock market development and modern constant signs and tendencies of the process. It is revealed that the improvement of the technical analysis and increase of the forecast accuracy is a complex process. The prospects for the effective use of technical analysis in trading strategies for promoting analysis by using historical data of price changes for the asset under study by using computer software are determined. Back testing calculations are presented making clear the fact that the financial result would be given by a trading strategy based on the historical profitability of the asset.

Impact of Stock Market Development on Economic Growth in BRICS

The study examines Stock Market development and economic growth in BRICS, Quarterly time series data for the period 1994QI to 2015Q4 were sourced from World Bank Indicator. The Panel Least Squares based on the fixed effect estimation was employed to determine how stock market development impacts on the economic growth of BRICS. Diagnostics tests were conducted to ascertain the robustness and stability of the regression results. The findings reveal that stock market development exerts significant impact on the economic growth. The study revealed that there is a positive correlation between stock market development indicators and BRICS’s economic growth. The study recommends that the weakness of each of the BRICS member country should be taken as policy focus and strategies necessary to strengthen them should be swiftly applied by the governments.

SHAPING THE STOCK PORTFOLIO BY THE INVESTMENT RATING METHOD

For the last five years capitalization of joint stock companies in Russia nearly doubled while the major indicator of stock market development, i. e. MISEX index – increased more than in 1,5 times. In spite of such favourable conditions for the development of portfolio investment mutual investment funds, whose investment is mainly shares demonstrate low effectiveness. In 2015 the growth in investment funds profitability showed 30,82% (in average), while MISEX index grew by 28,72%. If we take into account that commission rates with purchase and redemption reach 3,5%, while with purchase of exchange investment fund – 1%, then investor profitability, who entrusted his/her money to investment company or just invested it in index will be equal. Thus securities market needs more effective methods and algorithms of shaping the stock portfolio, as investor’s expectations of getting profits could be met only in case of professional choice of investment projects. The article puts forward a new express method of selecting shares to the portfolio called the method of investment rating. This method is based on developing logistic regression. It provides an opportunity to analyze share price of all issuers with the help of the programmed algorithm taking into account not only principle shares’ characteristics (risk and profitability) but the impact of other variables connected with finance and business work of the issuer and his market figures. The authors described economic and mathematic aspect of the process of giving an investment grade and tested the method of investment rating on the Russian securities market.

Impact of financial development on economic growth: Empirical analysis of India

The main objective of this paper is to study the impact of India's financial developments on its economic growth for the period 1989 to 2011. The Indian financial development is reflected by developments in stock market and banking sector. The paper aims to study the impact of both financial sectors independently as well as combined impact. The stock market development indicators and banking sector development indicators along with macro-economic reform indicators and control variables are regressed over economy's growth rate. Developments in Indian stock market have a weak and bi-directional relationship with the nation's economic growth. The stock market development measures are highly correlated with the banking sector development indicators leading to a problem of multi-collinearity in the regression model.

The Role of Stock Market Development on Economic Growth in OPEC Countries: Does Oil Price Movement Matter? Fresh Evidence from Nigeria

This study investigates the relationship link crude oil price and stock market development and economic growth in one of the OPEC countries with emphasis on Nigeria over the period 1981 to 2014, using the latest methodology autoregressive distributed lag approach (ARDL) to cointegration analysis. Three indicator of stock market development are constructed using principal component analysis. The revels the dominant role of rule oil price as one of the engine for economic growth in Nigeria. Using inflation and trade openness as a moderator on economic activities in Nigeria, this study found that stock market is insignificant in driving economic growth in Nigeria indicating poor financial sector performance. In general, the results highlight the dominant role crude oil price and posits the weakness of the stock market in stimulating economic growth through resource mobilization and allocation in Nigeria. Therefore for government to achieve sustainable economic development and maximize stock market performance, policy maker in oil exporting countries should monitor the movement of crude oil prices.

Stock Market Development and Economic Growth in India: An Empirical Analysis

<p><em>The link between </em><em>stock market development and economic activity has always been the subject of considerable debate in the field of economics and it raises empirical question whether stock market development influences economic activity or whether it is a consequence of increased economic activity. This study attempts to investigate the direction of causality between stock market development and economic growth in the Indian context. Using the cointegration and causality tests for the period June 1991 to June 2013, the study confirms a well defined long-run equilibrium relationship between the stock market development indicators and economic growth in India. The empirical results show bidirectional causality between market capitalisation and economic growth and unidirectional causality from turnover ratio to economic growth in the long-run and short-run. By and large, it can be inferred that the stock market development indicators viz. market capitalisation and turnover ratio have a positive influence on economic growth in India.</em><em></em></p>

On the linkage between stock market development and economic growth in emerging market economies

Purpose – The purpose of this study is to empirically examine the impact of stock market development on the economic growth for a panel of 27 emerging economies using annual data over the period from 1995 to 2012. Design/methodology/approach – A second-generation panel unit root test developed by Pesaran (2007) has been used to test the stationary properties of the data series. To achieve the study objectives and to mitigate the endogeneity problem that exists in the given model, the authors use a dynamic panel “system GMM” estimator. The authors also use a heterogeneous panel causality test proposed by Dumitrescu and Hurlin (2012) to examine the direction of causality among the variables. Findings – The empirical findings indicate that stock market development significantly contributes to economic growth. Further, a unidirectional causality running from stock market development to economic growth has been found. This finding is consistent with the supply-leading hypothesis. Besides stock market development, it is also evident that macroeconomic variables, such as investment ratio, trade openness and exchange rates, have significant impact on economic growth. Research limitations/implications – The findings suggest that a well-functioning stock market, a more globalized economy and increasing aggregate investment can potentially foster the economic growth in those emerging economies. Originality/value – Unlike other studies, this study constructs three alternate composite indices along with the individual indicators of stock market development and applies robust panel econometric techniques to establish more reliable results.