Research Article
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Year 2019, Volume: 1 Issue: 1, 1 - 16, 01.03.2019

Abstract

References

  • Adam, P. (2015) “A Model of the Dynamic of the Relationship Between Stock Prices and Economic Growth of Indonesia”, Applied Economics and Finance, 2 (3): 12-19.
  • Ando, A., and Modigliani, F. (1963) “The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests”, American Economic Review 53 (1), 55–84.
  • Beck, T. and Levine, R. (2004), “Stock Markets, Banks and Growth: Panel Evidence”, Journal of Banking and Finance, 28: 423-442.
  • Bernanke, B., Gertler, M. and Gilchrist, S. (1996) “The Financial Accelerator and the Flight to Quality”, The Review of Economics and Statistics, 78 (1) 1-15.
  • Choi, J., Hauser, S. and Kopecky, K. (1999), “Does the Stock Market Predict Real Activity? Times Series Evidence from the G-7 Countries”, Journal of Banking & Finance, 23: 1771-1792.
  • Cole, R., Moshirian, F. and Wu, Q (2008) “Bank Stock Returns and Economic Growth”, Journal of Banking and Finane, 32: 995-2007.
  • Comincioli, B. (1996) “The Stock Market as a Leading Indicator: An Application of Granger Causality”, The Park Place Economist, 4. Available online http://digitalcommons.iwu.edu/
  • Croux, C., & Reucens, P. (2013) “Does Stock Prices Contain Predictive Power for the Future Economic Activity? A Granger Causality Analysis in the Frequency Domain”, Journal of Macroeconomics,
  • Dickey, D. and Fuller, W. (1979) “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Association, 74: 427-431.
  • Enisan, A. and Olufisayo, A. (2009) “Stock Market Development and Economic Growth: Evidence from Seven Sub-Saharan African Countries”, Journal of Economics and Business, 61: 162-171.
  • Estrella, A. and Mishkin, F. S. (1996) “The Yield Curve as a Predictor of U.S. Recessions”, Federal Reserve Bank of New York, Current Issues in Economics and Finance, 2: 1-6.
  • Fama, E. F. (1981) “Stock Returns, Real Activity, Inflation and Money”, American Economic Review, 71 (4): 545-565.
  • Foresti, P. (2006) “Testing for Granger Causality between Stock Prices and Economic Growth”, Munich Personal RePec Archive (MPRA), 2962.
  • Gan, C., Lee M., Yong H., and J. Zhang (2006), “Macroeconomic Variables and Stock Market Interactions: New Zealand Evidence”, Investment Management and Financial Innovations, 3 (4): 89-101.
  • Goktas, O. and Hepsag, A. (2011) “Do Stock Returns Lead Real Economic Activity? Evidence from Seasonal Cointegration Analysis”, Economics Bulletin, 31(3): 2117–2127.
  • Gordon, M. J. (1959) "Dividends, Earnings and Stock Prices”, Review of Economics and Statistics, 41: 99–105.
  • Granger, C. J. (1969) "Investigating Causal Relationships by Econometrics Models and Cross Spectral Methods", Econometrica, 37: 425-435.
  • Granger, C. J. (1986) “Developments in the Study of Co-integrated Economic Variables”, Oxford Bulletin of Economics and Statistics, 38: 213-238.
  • Ho, S. and Odhiambo (2014/15) “Stock Market Development in the Philippines”, Philippine Journal of Development, 41 (1/2): 135-156.
  • Huang, R. D. and Kracaw, W. A. (1984) “Stock Market Returns and Real Activity: A Note”, The Journal of Finance, 39 (1): 267-273.
  • Hussain. F., and Mahmood.T. (2001) “The Stock Market and the Economy of Pakistan”, The Pakistan Development Review, 40 (2): 107-114.
  • Ibrahim, M. and Musah, A. (2014) “An Econometric Analysis of the Impact of Macroeconomic Fundamentals on Stock Market Returns in Ghana”, 6 (2): 47-72.
  • Ikoku, A. E. (2010) “Is the Stock Market a Leading Indicator of Economic Activity in Nigeria?”, CBN Journal of Applied Statistics, 1(1): 17-38.
  • Johansen, S. (1988) “Statistical Analysis of Co-integration Vector”, Journal of Economic Dynamics and Control, 12 (2/3) 231-254.
  • Kaplan, M. (2008) “The impact of Stock Market on Real Economic Activity: Evidence from Turkey”, Journal of Applied Sciences, 8(2): 374–378.
  • Krchniva, K. (2016) “Do Stock Markets Have Any Impact on Real Economic Activity?”, Acta Universitatis Agriculturae Et Silviculturae Mendelianae Brunensis,64 (1): 283-290.
  • Mahdavi, S. and Sohrabian, A. (1991) “The Link between the Rate of Growth of Stock Prices and the Rate of Growth of GNP in the United States: A Granger Causality Test”, The American Economist, 35 (2): 41-48.
  • Mao, Y. and Wu, R. (2007) “Does the Stock Market Act as a Signal for Real Activity? Evidence from Australia”, Economic Papers, 26: 180–192.
  • Mauro, P. (2003) “Stock Returns and Output Growth in Emerging and Advanced Economies”, Journal of Development Economics, 71: 129-153.
  • Mun, H. W., Siong, E. C., & Thing T. C. (2008) “Stock Market and Economic Growth in Malaysia: Causality test”, Asian Social Science, 4(4): 86-92.
  • Nishat, M. and Saghir, M. (1991) “The Stock Market and Pakistan Economy”, Savings and Development 15 (2): 131–145.
  • Nishat, M. and Shaheen, R. (2004) “Macroeconomic Factors and Pakistani Equity Market”, Pakistani Development Review, 43 (4): 619-637.
  • Pearce, D. K. (1983) "Stock Prices and the Economy", Federal Reserve Bank of Kansas City Economic Review, 11: 7-22.
  • Phillips, P.C. and Perron, P. (1988), “Testing for a Unit Root in Times Series Regression”, Biometrika, 75: 335-346.
  • Pilinkus, D. and Boguslauskas, V. (2008) “The Stock Market as a Leading Indicator in a Small Open Economy: An Application of Granger Causality”, Economics and Management, 13: 630-635.
  • Senturk, M., Ozkan, G. S., & Akbas, Y. E. (2014) “The Relationship between Economic Growth and Stock Return: an Example from Turkey”, Doğuş Üniversitesi Dergisi, 15 (2): 155-164.
  • Thomas, R. L. (1996) “Modern Econometrics: An Introduction”, Harlow: Addison-Wesley.
  • Tobin, J. (1969) “A General Equilibrium Approach to Monetary Theory”, Journal of Money, Credit and Banking, 1 (1): 15-29.
  • Tursoy, T. and Faisal, F. (2016) “Causality between Stock Price and GDP in Turkey: An ARDL Bounds Testing”, Romanian Statistical Reviw, 64 (4): 3-19.

IS THE STOCK MARKET IN THE PHILIPPINES A LEADING INDICATOR OF ECONOMIC ACTIVITY?

Year 2019, Volume: 1 Issue: 1, 1 - 16, 01.03.2019

Abstract

The conventional
models for stock pricing are anchored on the assumption that current stock
prices are forward looking as they reflect the estimated future earnings of
firms.  Since expectations of future
earnings are influenced directly by the expected level of economic activity,
then fluctuations in stock prices today may predict the future growth and
direction of the economy. The purpose of this study is to empirically
investigate whether the theoretical proposition that stock prices are a leading
indicator of economic activity applies to a small open economy like the
Philippines. The nexus between stock prices and the real economy is explored
using the Granger causality technique based on the vector error correction
model (VECM) using quarterly data from 1995 to 2017. The findings indicate the
existence of a statistically significant positive long run relationship between
real stock price and real economic growth. The econometric tests further
demonstrate that in the short run, real stock price Granger causes real gross
domestic product (RGDP). This provides evidence that changes in current stock
prices may predict changes in future economic activity lending support to the
leading indicator role of the stock market in the Philippines in the short
run.  However, in the long run, a
unidirectional causality from RGDP to real stock price is likewise detected
suggesting that economic growth contributes to the development of the country’s
stock market over the long term.

References

  • Adam, P. (2015) “A Model of the Dynamic of the Relationship Between Stock Prices and Economic Growth of Indonesia”, Applied Economics and Finance, 2 (3): 12-19.
  • Ando, A., and Modigliani, F. (1963) “The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests”, American Economic Review 53 (1), 55–84.
  • Beck, T. and Levine, R. (2004), “Stock Markets, Banks and Growth: Panel Evidence”, Journal of Banking and Finance, 28: 423-442.
  • Bernanke, B., Gertler, M. and Gilchrist, S. (1996) “The Financial Accelerator and the Flight to Quality”, The Review of Economics and Statistics, 78 (1) 1-15.
  • Choi, J., Hauser, S. and Kopecky, K. (1999), “Does the Stock Market Predict Real Activity? Times Series Evidence from the G-7 Countries”, Journal of Banking & Finance, 23: 1771-1792.
  • Cole, R., Moshirian, F. and Wu, Q (2008) “Bank Stock Returns and Economic Growth”, Journal of Banking and Finane, 32: 995-2007.
  • Comincioli, B. (1996) “The Stock Market as a Leading Indicator: An Application of Granger Causality”, The Park Place Economist, 4. Available online http://digitalcommons.iwu.edu/
  • Croux, C., & Reucens, P. (2013) “Does Stock Prices Contain Predictive Power for the Future Economic Activity? A Granger Causality Analysis in the Frequency Domain”, Journal of Macroeconomics,
  • Dickey, D. and Fuller, W. (1979) “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Association, 74: 427-431.
  • Enisan, A. and Olufisayo, A. (2009) “Stock Market Development and Economic Growth: Evidence from Seven Sub-Saharan African Countries”, Journal of Economics and Business, 61: 162-171.
  • Estrella, A. and Mishkin, F. S. (1996) “The Yield Curve as a Predictor of U.S. Recessions”, Federal Reserve Bank of New York, Current Issues in Economics and Finance, 2: 1-6.
  • Fama, E. F. (1981) “Stock Returns, Real Activity, Inflation and Money”, American Economic Review, 71 (4): 545-565.
  • Foresti, P. (2006) “Testing for Granger Causality between Stock Prices and Economic Growth”, Munich Personal RePec Archive (MPRA), 2962.
  • Gan, C., Lee M., Yong H., and J. Zhang (2006), “Macroeconomic Variables and Stock Market Interactions: New Zealand Evidence”, Investment Management and Financial Innovations, 3 (4): 89-101.
  • Goktas, O. and Hepsag, A. (2011) “Do Stock Returns Lead Real Economic Activity? Evidence from Seasonal Cointegration Analysis”, Economics Bulletin, 31(3): 2117–2127.
  • Gordon, M. J. (1959) "Dividends, Earnings and Stock Prices”, Review of Economics and Statistics, 41: 99–105.
  • Granger, C. J. (1969) "Investigating Causal Relationships by Econometrics Models and Cross Spectral Methods", Econometrica, 37: 425-435.
  • Granger, C. J. (1986) “Developments in the Study of Co-integrated Economic Variables”, Oxford Bulletin of Economics and Statistics, 38: 213-238.
  • Ho, S. and Odhiambo (2014/15) “Stock Market Development in the Philippines”, Philippine Journal of Development, 41 (1/2): 135-156.
  • Huang, R. D. and Kracaw, W. A. (1984) “Stock Market Returns and Real Activity: A Note”, The Journal of Finance, 39 (1): 267-273.
  • Hussain. F., and Mahmood.T. (2001) “The Stock Market and the Economy of Pakistan”, The Pakistan Development Review, 40 (2): 107-114.
  • Ibrahim, M. and Musah, A. (2014) “An Econometric Analysis of the Impact of Macroeconomic Fundamentals on Stock Market Returns in Ghana”, 6 (2): 47-72.
  • Ikoku, A. E. (2010) “Is the Stock Market a Leading Indicator of Economic Activity in Nigeria?”, CBN Journal of Applied Statistics, 1(1): 17-38.
  • Johansen, S. (1988) “Statistical Analysis of Co-integration Vector”, Journal of Economic Dynamics and Control, 12 (2/3) 231-254.
  • Kaplan, M. (2008) “The impact of Stock Market on Real Economic Activity: Evidence from Turkey”, Journal of Applied Sciences, 8(2): 374–378.
  • Krchniva, K. (2016) “Do Stock Markets Have Any Impact on Real Economic Activity?”, Acta Universitatis Agriculturae Et Silviculturae Mendelianae Brunensis,64 (1): 283-290.
  • Mahdavi, S. and Sohrabian, A. (1991) “The Link between the Rate of Growth of Stock Prices and the Rate of Growth of GNP in the United States: A Granger Causality Test”, The American Economist, 35 (2): 41-48.
  • Mao, Y. and Wu, R. (2007) “Does the Stock Market Act as a Signal for Real Activity? Evidence from Australia”, Economic Papers, 26: 180–192.
  • Mauro, P. (2003) “Stock Returns and Output Growth in Emerging and Advanced Economies”, Journal of Development Economics, 71: 129-153.
  • Mun, H. W., Siong, E. C., & Thing T. C. (2008) “Stock Market and Economic Growth in Malaysia: Causality test”, Asian Social Science, 4(4): 86-92.
  • Nishat, M. and Saghir, M. (1991) “The Stock Market and Pakistan Economy”, Savings and Development 15 (2): 131–145.
  • Nishat, M. and Shaheen, R. (2004) “Macroeconomic Factors and Pakistani Equity Market”, Pakistani Development Review, 43 (4): 619-637.
  • Pearce, D. K. (1983) "Stock Prices and the Economy", Federal Reserve Bank of Kansas City Economic Review, 11: 7-22.
  • Phillips, P.C. and Perron, P. (1988), “Testing for a Unit Root in Times Series Regression”, Biometrika, 75: 335-346.
  • Pilinkus, D. and Boguslauskas, V. (2008) “The Stock Market as a Leading Indicator in a Small Open Economy: An Application of Granger Causality”, Economics and Management, 13: 630-635.
  • Senturk, M., Ozkan, G. S., & Akbas, Y. E. (2014) “The Relationship between Economic Growth and Stock Return: an Example from Turkey”, Doğuş Üniversitesi Dergisi, 15 (2): 155-164.
  • Thomas, R. L. (1996) “Modern Econometrics: An Introduction”, Harlow: Addison-Wesley.
  • Tobin, J. (1969) “A General Equilibrium Approach to Monetary Theory”, Journal of Money, Credit and Banking, 1 (1): 15-29.
  • Tursoy, T. and Faisal, F. (2016) “Causality between Stock Price and GDP in Turkey: An ARDL Bounds Testing”, Romanian Statistical Reviw, 64 (4): 3-19.
There are 39 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Articles
Authors

Manuel Gerardo Duran 0000-0002-6085-8522

Publication Date March 1, 2019
Published in Issue Year 2019 Volume: 1 Issue: 1

Cite

APA Duran, M. G. (2019). IS THE STOCK MARKET IN THE PHILIPPINES A LEADING INDICATOR OF ECONOMIC ACTIVITY?. Journal of Empirical Economics and Social Sciences, 1(1), 1-16.