Stock Market Development Research Articles

"The Study on the Impact of Capital Market on Economic Growth in Sri Lanka "

Stock market is an indicator of an economy financial health. It indicates the mood of investors in a country. As such, stock market development is an important ingredient for economic growth. The stock market is a common feature of a modern economy and is expected to promote economic growth and development of an economy. This paper examines the impact of stock market development on Economic growth in Sri Lanka using data over the period 2009 – 2013 monthly data (60 months data). The main objective of this study is to examine the impact of stock market development on Economic growth in Sri Lanka. Towards achieving the objective of this paper, the data on market capitalization, All Share Price Index and Turnover ratio are collected from the CSE Data Library; while that of GDP information has been compiled from the CBSL annual reports and publications. Where Capital Market is the independent variable and Economic growth is the dependent variable. The studies on the relationship between stock market development and economic growth have generally taken the market capitalization (MKT), All Share Price Index (ASPI), turnover ratio (TRN) representing the stock market development and gross domestic product (GDP) as an proxy for economic growth and it has generally examined the relationship between stock market development and economic growth by using Johansen-Juselius cointegration test, maximum eigen test and multiple regression. As the data was gathered, it was entered and used to EViews statistical package to analyses the data. This study found that stock market development has a positive effect on economic growth.

Competitiveness of Human and Business in Terms of Stock Market Analysis

The competitiveness of modern human and business are inextricably linked with the work of the stock market. In some cases, easily could be detected a correlation between trends or tendencies of the stock market and the directions of transformation of human behavior. What should people and businesses be like to maintain this competitiveness at the proper level? According to the authors, it is the developed stock market as instrument of modern society that provides the answer to this question. Through the analysis of stock markets tendencies, this research aims to find evidence that confirm the new characteristics of human life in the fields of education, healthcare, communication, commerce, and interaction with virtuality. Most researchers focus separately on the study of human behavior and the functioning of the stock market. We analyze the relation between both dimensions, assuming that the stock market can be considered, for developed countries, through the small investors voting as public preferences and goals reflection. Evidence from statistical analysis of the stock market confirmed the following characteristics of modern human: faster dissemination of knowledge, e-commerce acceleration, influencing interpenetration of the Internet communications, in depth virtualization, and accelerated circulation of information flows. Operating within such flows of change allows people and businesses to remain competitive at the appropriate level.

Dynamics of stock market developments, financial behavior, and emotions

We explore in a series of incentivized experiments how stock market developments affect emotional arousal (proxied by pupil dilation, electrodermal activity, and heart rate variation), and how this emotional arousal affects investment behavior. Experiencing stock market downswings increases emotional arousal, while upswings do not trigger such an effect. The subsequent interplay between emotional arousal and investment behavior is by no means one-dimensional. The heightened level of emotional arousal after downswings reduces financial risk taking and thus the money put at stake, while the exposure to financial risks itself increases subsequent emotional arousal.

Is stock market development sensitive to macroeconomic indicators? A fresh evidence using ARDL bounds testing approach.

Over the past decades, emerging stock markets have started to significantly contribute to economic growth through mobilizing long-term capital by pooling funds, facilitating savings and investments into profitable projects and improving corporate governance structure. A plethora of empirical studies is devoted to investigate the determinants of different capital markets but due to highly controversial and inconclusive findings about macroeconomic determinants, this study contributes to the body of existing literature by empirically investigating the macroeconomic forces that drive the stock market development of Pakistan from 1980 to 2019. By applying Ng-Perron and Zivot-Andrews unit root tests (to determine the integrating orders of variables) and Autoregressive Distributed Lag (ARDL) bounds testing approach, our results confirm cointegration among variables and exhibit the significant positive impact of economic growth and banking sector development on stock market development and negative affect of inflation, foreign direct investment and trade openness on it in long run. At the same time, the short run results show a significant relationship of economic growth, inflation and foreign direct investment with stock market development. Our study has some important policy implications.

Driving private sector credit in Nigeria: The role of growth finance

There is some level of uncertainty as to whether private sector credit interacts with finance sources for growth to significantly influence channeling funds for investible purposes in Nigeria, given the nation’s unique characteristics. This study examines the role of various sources of growth finance on private sector credit in Nigeria. For this purpose, the study utilizes secondary data (1980–2018) sourced from CBN statistical annual reports. The study further employs the ARDL-Bounds Co-integration test to test out the hypothesis after stationarity testing. The study finds that stock market capitalization had a positive and significant influence on private sector credit compared to remittance inflows and gross domestic savings in the long run among the sources of growth finance indicators. Furthermore, remittance inflows reported a positive but statistically insignificant relationship, while gross domestic savings had a negative and insignificant coefficient. The study concludes that only stock market development inflow transmits to the private sector’s credit at 10 percent among the various growth finance sources.

Analysis of foreign capital inflows and stock market performance in Nigeria

Most studies concentrate on the impact of only one constituent of the foreign capital influx on the stock market and economic performance, but only few studies simultaneously considered the unique impact of the duo of foreign portfolio investment (FPI) and foreign direct investment (FDI), and many of these studies were not undertaken in Nigeria.This study, therefore, assesses how foreign capital inflows (FPI and FDI) affect the stock market development in Nigeria. The foundations for the empirical study were built upon the dividend discount model, which formed the basis for the analytical framework. Going forward, the ARDL co-integration procedure was adopted to examine the long-run relationship between foreign capital and stock market performance. The results from the ARDL Bounds test suggest no evidence of a long-run equilibrium relationship between foreign capital inflows (FDI & FPI) and the stock market performance. Also, the short-run analysis indicates an insignificant relationship between FDI and stock market performance, whereas, a reversed relationship was obtained for FPI, as it exerts a positive and significant impact on stock market performance. The study recommends strengthening the institutional framework for the enlistment of multinational companies in the Nigerian stock market.

TRADING BEHAVIOUR OF FOREIGN INSTITUTIONAL INVESTORS IN INDIA: AN EMPIRICAL STUDY

The study is about the investment behaviour of “Foreign Institutional Investors” (FII) in the Indian stock market w.r.t their trading behaviour and its impact on stock market movements. We have collected the daily data of investment of FII net equity investments and NIFTY 50 index in Indian stock markets for a long time period from the year 2000 to 2022. The paper used trend analysis and the relationship between FII net equity investments and NIFTY 50 index. The paper found a significant relationship and causality in the direction of NIFTY to FII investments. The FII are found to invest with consistency in the Indian stock market and are also responsible to contribute significantly to the development of the Indian stock market.

Foreign Capital Inflows and Stock Market Development in Nigeria: An Asymmetric Causality Approach

The study used the recently developed symmetric and asymmetric Granger causality test by Hatemi-J to investigate the causal relationships between foreign capital inflows and stock market development in Nigeria from 1986 to 2019. The findings show unidirectional symmetric causality between stock market development and foreign direct investment, while no symmetric causality was found between stock market development and foreign portfolio investment. The results show unidirectional asymmetric causality of positive and negative shocks of stock market development to the negative shock of foreign direct investment. In contrast, the negative shock of stock market development shows a unidirectional asymmetric causality to the positive shock of foreign portfolio investment. The results revealed the causality relationship between foreign capital inflows and stock market development, including positive and negative aspects in Nigeria. These findings have implications for portfolio design and strategies that are important to policymakers and investors.How to Cite:Awoleye, E. O., (2022). Foreign Capital Inflows and Stock Market Development in Nigeria: An Asymmetric Causality Approach. Signifikan: Jurnal Ilmu Ekonomi, 11(2), 339-354. https://doi.org/10.15408/sjie.v11i2.26195.JEL Classification: G12, F21, D82, C19

Foreign direct investment and stock market development in Nepal

PurposeThe purpose of this paper is to investigate the impact of foreign direct investment (FDI) on the stock market development in Nepal.Design/methodology/approachThe study used Johansen cointegration approach to determine long-run relationship and VEC Granger causality test to check the causal relations between the variables. The sample covered annual time-series data for the period 1996–2020.FindingsThe results suggest that FDI plays significant positive role in the stock market development in the long-run but inversely affect in the short-run. Unidirectional causality running from FDI to stock market development is observed in the long-run and bidirectional in the short-run. There is an insignificant positive relationship between exchange rate and FDI in the short-run. Banking sector development complements stock market development in the short-run but act as a substitute in the long-run. The statistically negative coefficient of exchange rate imply that the appreciation of the home currency encourage the development of the stock market in the long-run.Originality/valueThe positive and statistical coefficients of cointegration results indicate that FDI complements the development of stock market in Nepal in the long-run. Furthermore, the depreciation of the domestic currency may potentially contribute to the foreign direct investments in Nepal.

Assessing Literatures on the Dependence of Stock Market Development on Upstream Oil Royalty Revenue and Systematic Risk Factors: Highlighting the Relevance of Dutch Disease Theory and Capital Asset Pricing Model

The paper assessed past literatures on the dependence of stock market financial development on upstream oil royalty revenue account and systematic risk factors and evaluating the relevance of Dutch Disease theory and capital asset pricing model. Theoretical approach supports the role of oil royalty revenue vis-à-vis oil price volatility, foreign exchange rate risk, financial liquidity risk and interest rate risk in determining the performance and financial development of stock market. It is well documented in research that stock prices react to information on oil revenue, crude oil production, monetary policy interest rate, foreign exchange rate uncertainty and diaspora cash remittances. Traditional valuation of stock is based on capital asset pricing model but the modern relevance is in doubt due to anomalous performance of investors and behavioural sentiments. Stock markets of emerging economies over the past few decades have witnessed remarkable growth as indicated by the value and volume of trade in the markets along with the level of capital inflows from developed markets, thereby providing numerous opportunities for investments. The development of the stock market is vital as it provides more opportunities for greater mobilization of funds from with and diaspora remittances and better efficiency in resource allocation. Nevertheless, investment returns in the stock market of developing economies continue to be more reactive to changes in economic fundamentals due to their fragile and volatile nature. This makes them even more unpredictable and unstable unlike the stock markets of developed economies, which are known to be more stable. Stock market financial development is not symptomatic of Dutch Diseases based on the fact that Oil-induced Dutch Disease assumes an oil sector which largely contributes to the economy while so many vital systematic risk factors affects stock market development. Optimistically this study along with other previous and future studies will increase the knowledge about Dutch Disease and will contribute to lessen the harmful effects that Dutch Disease causes. In spite of the common perception that oil is extremely important for financial and economic dynamics, there is, unexpectedly, a dearth of research on how oil revenue and prices influence stock market financial development.

Stock Market Capitalisation, Banks’ Lending and Deposit Interest Rate in Relation to Financial Liberalisation Theory in Nigeria (1985-2021)

The paper examines the impact of deposit rates on savings, lending rates on credits and market capitalization of Nigerian Exchange group limited from 1985 to 2021, using co-integration and vector error correction approach. The specific objectives were to estimate the short-and long-run association as well as the error correction mechanism of lending interest rate and deposit interest rate and stock market capitalization in Nigeria. The outcome of the exercise validated the hypothesis of financial liberalisation theory that deposit rates on savings, lending rates on credits on market capitalization of Nigerian Exchange group limited. Deposit interest rate and lending interest rate have significant explanatory power for stock market capitalization, which is consistent with our expectations in line with financial liberalization theory in Nigeria. The regulatory body should mandate banks to channel their mobilised savings to investors in form of loans at reasonable interest rate. Hence, the pointer should be to identify those constraints and bottlenecks that are making it difficult for banks to make loans available to investors. The issue of high interest rate with hidden transaction costs must be vigorously addressed by the monetary authorities; Monetary authorities should pursue policies that will encourage the saving culture of the people. This could be done by increasing the deposit rate which would lure people to deposit their money in banks thereby increasing the supply of loanable funds. This would lead to a fall in interest rate and eventually rise in investment in stock market development.

A comparative analysis of the outliers influence using GMM estimation based on dynamic panel data model

ABSTRACT This study proposes a novel approach by combining the first differenced generalized method of moments method (DIF-GMM) to remove the estimates bias in the dynamic panel data model and the least trimmed squares (LTS) to control outlier influence. The combination of these two methods is referred to as DIF-GMM+LTS. We apply this approach to examine the influence of outliers on the effect of financial development on economic growth. Our results show a counter-intuitive evidence that the bank development negatively affects economic growth when the outlier influence is ignored. However, the bank development exhibits a positive influence on economic growth once the proposed approach DIF-GMM+LTS is adopted. Also, stock market development shows a positive effect on economic growth regardless of the outliers.

Do environmental technology and banking sector development matter for green growth? Evidence from top-polluted economies.

Pursuing green growth is imperative to cope with the climate change battle. Green growth in top-polluting economies is being encouraged. The underlying work is aiming to investigate the impact of environmental technology and banking sector on green growth. More precisely, the study employs CS-ARDL and PMG-ARDL methods for empirical assessment. The FMOLS and DOLS techniques have been used to perform the sensitivity analysis for CS-ARDL and PMG-ARDL results. Empirical evidence of both the CS-ARDL and PMG-ARDL models reveals that banking sector development and environmental technology promote green growth. In detail, the insights reveal the significant and positive effect of environmental innovations and technology on green growth in both long-run as well as in short-run. Moreover, the findings of the study also disclose the significant and positive effect of banking sector and stock market developments on green growth in both long-run and short-run. Sensitivity analysis confirmed and improved our findings. Based on these effects, the study delivers policy implications for the promotion of environmental-based technological innovations and financial sector development to enhance green growth in top-polluted economies.

Stock Prediction and Analysis Based on Support Vector Machine

The changes of the stock market are closely related to the market development and economic research trends of the whole country. Correctly predicting the stock price trend is not only beneficial for investors to make correct investment management decisions, but also plays an important role in promoting the effective allocation of resources and improving market effectiveness. significance. To this end, the daily closing prices of Shanghai Hengrui Medicine and Baosteel Co., Ltd. are used as the basic data, and the support vector machine of python software is used to empirically predict and analyze the development of my country's stock market. The accuracy rate is as high as about 90%; then the parameter optimization is carried out on the basis of the model again, and it is also concluded that the accuracy of stock prediction is as high as about 90%, indicating that the stock prediction accuracy rate based on support vector machine is ideal and has meaningful.

Research on the investment strategy of new energy vehicle industry based on multi-factor stock selection

With the development of the Chinese stock market and the continuous improvement of financial engineering technology, quantitative investment represented by the multi-factor stock selection strategy has been developing and growing in the Chinese stock market. This paper takes the quarterly data of the China Securities New Energy Vehicle Index from January 2017 to March 2021 as the research object, uses the Fama-Macbeth test to select factors, and constructs the regression equation based on the regression method. The regression equation is used to predict the stock return rate of the next quarter through the factor data of each quarter in 2020. The top 7 stocks with returns are selected to construct the investment portfolio in the way of equal-weighted capital allocation, and the investment portfolio is updated quarterly. Through the empirical test, this paper mainly draws the following three conclusions: First, the driving factors of stock return in the new energy vehicle industry mainly include the ratio of long-term debt to working capital (LTDWC), total profit growth rate (TPG), price/earnings to growth ratio (PEG), and equity turnover ratio (ET); secondly, the portfolio return based on the stock selection model in this paper is higher than the average level of the industry, and the investment return obtained is stable, suitable for investment targets; third, the new energy vehicle industry is in a period of rapid development, and the portfolio return rate is higher than the average level of A-share market. Therefore, it has huge potential investment value. This paper provides suggestions and solutions for investors' stock investment in the new energy vehicle industry.

EXAMINING THE CONTRIBUTION OF INTERNAL FACTORS OF AN INVESTOR IN DRIVING THE INVESTMENT DECISION

The purpose of this study is to investigate the impact of internal psychological factors driving on investor’s investment decision making. The internal psychological factors of investor discussed as the research objects are financial literacy, loss aversion, and overconfidence. Data were collected from questionnaires and fulfilled by investors registered at securities companies in Central Java, Indonesia. Applying multiple regression approach, the results suggest that investor’s financial literacy drives positively in making investment decision; investor’s loss aversion drives negatively in making investment decision, and investor’s overconfidence does not drive in making investment decision. As the implication, market participants should consider financial behavior of investors in observing stock price movement to achieve higher stock returns. Moreover, stock exchange institutions should include the internal psychological factors of investor in formulating their policy to enhance stock market development. KEYWORDS: investment decision, financial literacy, loss aversion, overconfidence.

Board Reforms, Stock Liquidity, and Stock Market Development

Abstract This paper studies the effect of board reforms on stock liquidity using data from 37 countries. We document that board reforms significantly increase stock liquidity: the effective spread on average decreases by 12.7% after a board reform. As information asymmetry is a key determinant of stock liquidity, we further find that board reforms decrease information asymmetry, and the treatment effect of board reforms on stock liquidity is stronger for firms with ex ante higher information asymmetry. Finally, board reforms facilitate healthy stock market development, with the effect being stronger for countries with lower aggregate stock market liquidity prior to reforms. (JEL G14, G15, G18) Received January 2, 2022; editorial decision August 3, 2022 by Editor Camelia Kuhnen.

Stock market, credit market, and heterogeneous innovations

AbstractThe relative importance of credit market development and stock market development in boosting innovation remains a long‐standing debate issue. In this study, we document how different types of financial markets development affect heterogeneous innovations. Using a broad sample across 42 developed and emerging economies and a generalized difference‐in‐differences identification strategy, we find that stock market development leads to significantly higher substantive innovation, especially in young and small firms, but has negative impact on incremental innovation. Conversely, credit market development promotes incremental innovation, especially in mature and large firms, but has negative impact on substantive innovation. Further analyses indicate that stronger shareholder protection enhances the positive impact of stock market on substantive innovation, while stronger creditor rights enhance the promoting effect of credit market on incremental innovation, and even turn the negative impact of credit market on substantive innovation into positive. Our paper provides new insights into the heterogeneous effects of credit market and equity markets on the real economy.

Intermarket Analysis: Oil, Gold, US Dollar and Stock Market

The interdependence among the prices of oil, gold, the US dollar and stock market prices is of fundamental importance for any investment decision. This paper studies the bilateral relationships between these asset classes in order to identify direct and indirect relationships, positive and negative interactions by using regression analysis, and then tries to demonstrate if a simultaneous relationship exists between the four asset classes via the empirical methodology: the simultaneous equation approach. The international data used to do a regression analysis to identify the bilateral relationships between assets is from November, 2011 to October, 2021 on a monthly basis. The study relies on many theoretical findings to identify the negative or positive linkage. The main goal of quantifying these relationships, is to check if they are helpful in predicting and timing the next phase of the economic cycle. The findings reveal strong cross-market interactions. An inverse relationship between oil prices and stock prices was discovered, whereas gold and the USD had a large and positive impact on oil prices. Oil, USD, and stock market developments have an impact on the gold rate. The stock market, as well as the price of gold and oil, have a considerable negative impact on the US dollar. Therefore, after studying the relationships between those assets, the results will be helpful in predicting the economic cycle.

Asymmetric Impact of Corporate Tax on Stock Market Development: Evidence from The Nonlinear Autoregressive Distributed Lag (ARDL) Approach

The stock market and tax policy are widely considered as two core factors for economic growth in any country. A well-developed and functioning stock market provides information on profit-making of successful investment projects, risk diversification, and efficient resource allocation. In addition to domestic resources, the stock market is also considered a crucial part of the global economy. In recent years most OECD countries, including the United States, have substantially reduced their corporate tax rates to stimulate investments, attract foreign capital, and achieve higher economic growth. Corporate tax cuts in a country are expected to positively affect stock market development by encouraging domestic investments and allowing for profit repatriation by multinational companies and foreign firms which will effectively lead to higher stock market development. Despite an extensive literature examining effects of tax policy and the stock market on economic growth, only a few studies have investigated the relationship between corporate tax rate and stock market development, and these studies have shown mixed results. This study investigates the link between corporate tax and stock market development for a group of nine selected OECD countries for the period of 1980-2018 using both long-run and short-run models. In addition to the Pesaran, Shin and Smith (2001) bounds testing approach to cointegration and error correction modeling using the linear ARDL model, we employ the Shin, Yu and Greenwood-Nimmo (2014) nonlinear cointegration approach to investigate the asymmetric impact of corporate tax changes on stock market development. Our findings indicate that, in the linear model in most of countries in this sample, corporate taxing adversely affects stock market development both in the short run and in the long run. In addition, as the first study using the N-ARDL estimation method to investigate this relationship, the robust and strong statistical results show that the effect of corporate tax on stock market development as a major part of financial market development is asymmetric. We show that corporate tax policies in the short run have a nonlinear, asymmetric impact on stock market development. The magnitude of the impact depends on whether the tax policy is a decrease or an increase in corporate tax. Furthermore, this effect changes among the countries in our study. For instance, the stock market's reaction to an increase of corporate taxing in the United States is much more rapid than that of decreases of corporate taxing. Corporate tax increases immediately and strongly affect the stock market, but the stock market takes years to incorporate the effect of tax decreases.