The Macroeconomic Determinants of Stock Market Development: Evidence from South Africa

Ho, Sin-Yu (2017): The Macroeconomic Determinants of Stock Market Development: Evidence from South Africa.

Abstract

This study examines the macroeconomic determinants of stock market development in South Africa during the period 1975-2015. Specifically, it examines the impact of banking sector development, economic growth, inflation rate, real interest rate, and trade openness on the development of South African stock market. Currently, while theoretical and empirical literature presents diverse views on the relationship between each determinant and stock market development, no studies have been conducted with particular reference to the South African stock market. Given the significant role the South African stock market plays in the world, especially in Africa as measured by its market capitalization and market capitalization ratio, there is a need for more understanding of the macroeconomic determinants’ impact on its development. This paper enriches existing literature by investigating the macroeconomic determinants of stock market development in South Africa using the ARDL bounds testing procedure. The results find that banking sector development and economic growth have positive long-run impact, whereas inflation rate and trade openness have negative long-run impact on stock market development. In the short run, the results find that economic growth have positive impact, while inflation rate, real interest rate, and current period of trade openness have negative impact on stock market development. These findings have important policy implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macroeconomic determinants; Stock market development; South Africa; ARDL bounds testing
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

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