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Tuteja, S. K.
- Causality Between Stock Market Development and Economic Growth
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Authors
Affiliations
1 Senior Economist Tata Consultancy Services Ltd. Hyderabad 500001
2 Faculty of Management Studies University of Delhi, Delhi 110007
1 Senior Economist Tata Consultancy Services Ltd. Hyderabad 500001
2 Faculty of Management Studies University of Delhi, Delhi 110007
Source
Journal of Management Research, Vol 7, No 3 (2007), Pagination: 158-168Abstract
Whether stock market development causes, or is caused by, economic growth is an unsettled issue. It assumes greater relevance for India given tremendous spurt in stock market activities in the last decade. There is limited time-series econometric evidence that documents the link between stock market developments and the Indian economy. Causality tests in the present study are preceded by cointegration testing which provides a more natural setting for causality studies and inferences. Furthermore, the present study tries to overcome the problems encountered by previous research by constructing and using a composite index of stock market developments. Our findings provide evidence of a stable long run equilibrium relationship between stock market developments and economic growth in India. This study suggests that the policies relating to stock market should be directed towards the creation of transparent and mature stock exchanges in which there will be a preponderance of investors who take a long term view rather than catering only to the needs/whims of speculators and day traders.Keywords
Badla System, Banking Sector Development Index, Economic Growth Index, Stock Market Development Index
References
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Abstract Views :237 |
PDF Views:1
Authors
Affiliations
1 TCS Innovation Lab-Business Systems Tata Consultancy Services Hyderabad 500001, IN
2 Faculty of management Studies University of Delhi, Delhi 110007, IN
1 TCS Innovation Lab-Business Systems Tata Consultancy Services Hyderabad 500001, IN
2 Faculty of management Studies University of Delhi, Delhi 110007, IN
Source
Journal of Management Research, Vol 8, No 3 (2008), Pagination: 136-146Abstract
The present paper is an attempt to examine the causal relationships between the share price index and industrial production for India in a multivariate vector error correction model which involves certain other crucial macroeconomic variables namely money supply, credit to the private sector, exchange rate, wholesale price index, and money market rate for the reason of right and robust model specification. The purpose is to highlight the relationship between economic growth and stock market especially in terms of stock prices. The present study thus proceeds with a single point investigative agenda what is the relationship between the health of the real economy and the health of the stock market? Does a rally in share prices reflect better health of the economy or is it the pink economic health that causes share prices to rise? The present study reports causality running from economic growth proxied by industrial production to share price index and not the other way round.Keywords
Share Price Index, Industrial Production, Macroeconomic Variables, Cointegartion and Multivariate Vector Error Correction ModelReferences
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