ECONOMIC GROWTH, INFLATION, AND CAPITAL MARKET PERFORMANCE: IS THERE A LINK IN JORDAN?
Purpose - The relationship between some macroeconomic variables and stock market returns still attracts the attention of researchers. Indeed, this interest lies in the fact the stock development enhances real economic growth. Within this context, the objective of this paper is to examine the Jordanian capital market (Amman Stock Exchange / ASE) in terms of the nexus between macroeconomic variables and the stock price index. Methodology - To examine the relationship between real Gross Domestic Product (GDP) and consumer price index (CPI) and the ASE’s market index, this paper covers the period 1980 – 2019, and uses time series techniques including stationarity test, lag length selection criteria, co-integration, Vector Error Correction Model (VECM), and some stability tests. Findings – In contrast to most of the published literature, the impact of real GDP on the ASE’s market index and on its market capitalization is negative and significant. In addition, while the impact of consumer price index on the market index is not significant, its impact of market capitalization is negative and significant. Conclusion – Based on the estimated results, we argue that the ASE’s performance does not reflect the performance of the national economy. On the contrary, the relationship is negative. In addition, we argue that the ASE’s market index does not hedge investors against inflation. These results indicate that the ASE’s market index should not be used as a proxy measure of the performance of the national economy.
___
- Abdalla, I. & Murinde, V. (1997). Exchange rate and stock price interactions in emerging financial markets: Evidence on India, Korea, Pakistan, and Philippines. Applied Financial Economics, 7, 25-35.
- Ben Naceur, S. & Zhang, R (2016). Financial development, inequality and poverty: Some international evidence. IMF Working Paper No. 16/32.
- Bodie, Z. 1976. Common stocks as a hedge against inflation. The Journal of Finance, 31, 459–70.
- Boonyanam, N. (2014). Relationship of stock price and monetary variables of Asian small open emerging economy: Evidence from Thailand. International Journal of Financial Research, 5, 52–63.
- Chen, Nai-Fu (1991). Financial investment opportunities and the macroeconomy. Journal of Finance, 46, 529-554.
- Chen, N., Roll, R & Ross, S. (1986). Economic forces and the stock Market. Journal of Business, 59, 383-403.
- Eita, J. (2012). Modelling macroeconomic determinants of stock market prices: Evidence from Namibia. Journal of Applied Business Research, 4, 871–884.
- Fama, E. & Schwert, O. (1977). Asset returns and inflation. Journal of Financial Economic, 5, 120-132.
- Fama, E. (1981). Stock returns, real activity, inflation and money. The American Economic Review, 71, 45-565.
- Fama, E. F. (1990). Stock returns, expected returns and real activity. Journal of Finance, 45, 1089-1108.
- Fama E. & French, F. (1989). Business conditions and expected prices on stocks and bonds. Journal of Financial Economics, 25, 23-49.
- Fisher, I. (1930). The Theory of Interest, The Macmillan Company.
- Humpe, A. & Macmillan, P. (2009). Can macroeconomic variables explain long-term stock market movements? A comparison of the US and Japan. Applied Financial Economics, 19, 111-19.
- Hunjra, A., Chani, M., Shahzad, M., & Khan, F. (2014). The impact of macroeconomic variables on stock prices in Pakistan. International Journal of Economics and Empirical Research, 2, 13–21.
- Ibrahim, T. & Agbaje, M (2013). The relationship between stock return and inflation in Nigeria. European Scientific Journal, 9, 146–157.
- Jaffe, J., & Mandelker, G. (1976). The “Fisher effect” for risky assets: an empirical investigation. Journal of Finance, 31, 447–58.
- Kaneko T, & Lee, B. (1995). Relative importance of the economic factors in the U.S. and Japanese stock markets. Journal of the Japanese and International Economies, 9, 209-307.
- Khataybeh, Mohammad A.;Abdulaziz, Mohamad;Marashdeh, Zyad (2019). Cross-Sectional Relationship Between Beta and Realized Returns in Emerging Markets. Applied Economics Quarterly, 65, (2),115-137.
- Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, XXXV, 688-726.
- Lintner, J. (1975), Inflation and security returns. The Journal of Finance, 30, 259-280.
- Nelson, C.R. (1976). Inflation and rates of return on common stocks. The Journal of Finance, 31, 471-483.
- Olokoyo, F., Ibhagui, O. & Babajide, A. (2020). Macroeconomic indicators and capital market performance: Are the links sustainable? Cogent Business & Management, 7, 1-17.
- Phylaktis, K. & Ravazzolo, F. (2005). Stock prices and exchange rate dynamics. Journal of International Money and Finance, 24, 1031-1053.
- Thornton J (1993). Money, output and stock prices in the UK. Applied Financial Economics, 3, 335-338.
- Tripathi, V. & Kumar, A. (2014). Relationship between inflation and stock returns evidence from Brics markets. International Journal of Accounting and Finance Reporting, 4, 647–658.
- Yayın Aralığı: Yılda 4 Sayı
- Başlangıç: 2014
- Yayıncı: PressAcademia