Browse > Article
http://dx.doi.org/10.13106/jafeb.2021.vol8.no2.0077

The Macroeconomic and Institutional Drivers of Stock Market Development: Empirical Evidence from BRICS Economies  

REHMAN, Mohd Ziaur (Department of Finance, College of Business Administration, King Saud University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.2, 2021 , pp. 77-88 More about this Journal
Abstract
The stock markets in the BRICS (Brazil, Russia, India, China and South Africa) countries are the leading emerging markets globally. Therefore, it is pertinent to ascertain the critical drivers of stock market development in these economies. The currrent study empirically investigates to identify the linkages between stock market development, key macro-economic factors and institutional factors in the BRICS economies. The study covers the time period from 2000 to 2017. The dependent variable is the country's stock market development and the independent variables consist of six macroeconomic variables and five institutional variables. The study employs a panel cointegration test, Fully Modified OLS (FMOLS), a Pooled Mean Group (PMG) approach and a heterogeneous panel non-causality test.The findings of the study indicate co-integration among the selected variables across the BRICS stock markets. Long-run estimations reveal that five macroeconomic variables and four variables related to institutional quality are positive and statistically significant. Further, short-run causalities between stock market capitalization and selected variables are detected through the test of non-causality in a heterogeneous panel setting. The findings suggest that policymakers in the BRICS countries should enhance robust macroeconomic conditions to support their financial markets and should strengthen the institutional quality drivers to stimulate the pace of stock market development in their countries.
Keywords
Emerging Markets; Panel Econometric Models; Stock Market Development; Macro-Economic Indicators; Institutional Indicators;
Citations & Related Records
Times Cited By KSCI : 1  (Citation Analysis)
연도 인용수 순위
1 Lee, J. W., & Zhao, T. F. (2014). Dynamic relationship between stock prices and exchange rates: Evidence from Chinese stock markets. Journal of Asian Finance, Economics and Business, 1(1), 5-14. https://doi.org/10.13106/jafeb.2014.vol1.no1.5.   DOI
2 Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7   DOI
3 Levine, R. (1991). Stock markets, growth, and tax policy. The Journal of Finance, 46(4), 1445-1465. https://doi.org/10.1111/j.1540-6261.1991.tb04625.x   DOI
4 Levine, R. (2005). Chapter 12 Finance & growth: Theory and evidence. Handbook of Economic Growth, 1, 865-934. https://doi.org/10.1016/S1574-0684(05)01012-9   DOI
5 Levine, R., & Zervos, S. (1998). Stock markets, banks, and economic growth. American Economic Review, 537-558
6 Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(Suppl.1), 631-652. https://doi.org/10.1111/1468-0084.0610s1631   DOI
7 Manasseh, C. O., Mathew, T. E., & Ogbuabor, J. E. (2017). Investigating the nexus between institutional quality and stock market development in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach. African Development Review, 29(2), 272-292. https://doi.org/10.1111/1467-8268.12256   DOI
8 Marques, L. M., Fuinhas, J. A., & Marques, A. C. (2013). Does the stock market cause economic growth: Portuguese evidence of economic regime change. Economic Modelling, 32, 316-324. https://doi.org/10.1016/j.econmod.2013.02.015   DOI
9 Mensi, W., Hammoudeh, S., & Kang, S. H. (2017). Risk spillovers and portfolio management between developed and BRICS stock markets. The North American Journal of Economics and Finance, 41, 133-155. https://doi.org/10.1016/j.najef.2017.03.006   DOI
10 Mensi, W., Hammoudeh, S., Reboredo, J. C., & Nguyen, D. K. (2014). Do global factors impact BRICS stock markets? A quantile regression approach. Emerging Markets Review, 19, 1-17. https://doi.org/10.1016/j.ememar.2014.04.002   DOI
11 Mohamed Dahir, A. M., Mahat, F., Ab Razak, N. H., & BanyAriffin, A. N. (2018). Revisiting the dynamic relationship between exchange rates and stock prices in BRICS countries: A wavelet analysis. Borsa Istanbul Review, 18(2), 101-113. https://doi.org/10.1016/j.bir.2017.10.001   DOI
12 Mok, H. M. (1993). Causality of interest rate, exchange rate and stock prices at stock market open and close in Hong Kong. Asia Pacific Journal of Management, 10(2), 123-143. https://doi.org/10.1007/BF01734274   DOI
13 Narayan, P. K., Narayan, S., & Thuraisamy, K. S. (2014). Can institutions and macroeconomic factors predict stock returns in emerging markets?. Emerging Markets Review, 19, 77-95. https://doi.org/10.1016/j.ememar.2014.04.005   DOI
14 Nguyen, C. P., Nguyen, T. V. H. & Schinckus, C. (2019). Institutions, economic openness and stock return co-movements: An empirical investigation in emerging markets. Finance Research Letters, 28(C), 137-147. https://doi.org/10.1016/j.frl.2018.04.010   DOI
15 Obstfeld, M. (1992). Risk-taking, global diversification, and growth. NBER Working Paper No. w4093. National Bureau of Economic Research. https://doi.org/10.3386/w4093   DOI
16 Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61(s1), 653-670. https://doi.org/10.1111/1468-0084.61.s1.14   DOI
17 Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621-634. https://doi.org/10.1080/01621459.1999.10474156   DOI
18 Pedroni, P. (2000). Fully modified OLS for heterogeneous cointegrated panels. Advances in Econometrics, 15, 93-130. https://doi.org/10.1016/S0731-9053(00)15004-2   DOI
19 Pedroni, P. (2001). Purchasing power parity tests in cointegrated panels. Review of Economics and Statistics, 83(4), 727-731. https://doi.org/10.1162/003465301753237803   DOI
20 Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample properties of pooled time series test with an application to the PPP hypothesis. Econometric Theory, 20(3), 597-625. https://doi.org/10.1017/S0266466604203073   DOI
21 Pham, V. T. H. (2020). Impacts of Corruption Control on Economic Growth in Relationship with Stock Market and Trade Openness. The Journal of Asian Finance, Economics and Business, 7(12), 73-84. https://doi.org/10.13106/jafeb.2020.vol7.no12.073   DOI
22 Phillips, P. C., & Hansen, B. E. (1990). Statistical inference in instrumental variables regression with I (1) processes. The Review of Economic Studies, 57(1), 99-125. https://doi.org/10.2307/2297545   DOI
23 Phylaktis, K., & Ravazzolo, F. (2005). Stock market linkages in emerging markets: Implications for international portfolio diversification. Journal of International Financial Markets, Institutions and Money, 15(2), 91-106. doi:10.1016/j.intfin.2004.03.001   DOI
24 Rajan, R. G., & Zingales, L. (2003). The great reversals: the politics of financial development in the twentieth century. Journal of Financial Economics, 69(1), 5-50. https://doi.org/10.2307/229754510.1016/S0304-405X(03)00125-9   DOI
25 Shirvani, H., & Delcoure, N. (2012). Government size and stock market performance in the G7 countries: some robust bilateral causality tests. International Business and Management, 4(2),1-6
26 Roubaud, D., & Arouri, M. (2018). Oil prices, exchange rates and stock markets under uncertainty and regime-switching. Finance Research Letters, 27, 28-33. https://doi.org/10.1016/j.frl.2018.02.032   DOI
27 Sadorsky, P. (1999). Oil price shocks and stock market activity. Energy Economics, 21(5), 449-469. https://doi.org/10.1016/S0140-9883(99)00020-1   DOI
28 Shi, Y., Ahmed, K., & Paramati, S. R. (2019). Determinants of stock market development and price volatility in ASEAN plus three countries: The role of institutional quality. International Journal of Finance and Economics. https://doi.org/10.1002/ijfe.1804   DOI
29 Stiglitz, J. E. (1985). Credit markets and the control of capital. Journal of Money, Credit and Banking, 17(2), 133-152. https://doi.org/10.2307/1992329   DOI
30 Umar, B., & Nayan, S. (2018). Does regulatory quality matters for stock market development?: Evidence from Africa. International Journal of Economics and Financial Issues, 8(4), 10
31 Wilson, D., & Purushothaman, R. (2003). Dreaming with BRICs: the path to 2050. Goldman Sachs Global Economics Paper, 99, 1-24.
32 Yartey, C. A. (2007). Well-developed financial intermediary sector promotes stock market development: Evidence from Africa. Journal of Emerging Market Finance, 6(3), 269-289. https://doi.org/10.1177/097265270700600303   DOI
33 Yartey, C. A. (2010). The institutional and macroeconomic determinants of stock market development in emerging economies. Applied Financial Economics, 20(21), 1615-1625. https://doi.org/10.1080/09603107.2010.522519   DOI
34 Barnes, M., Boyd, J. H., & Smith, B. D. (1999). Inflation and asset returns. European Economic Review, 43(4-6), 737-754. https://doi.org/10.1016/s0014-2921(98)00090-7   DOI
35 Apergis, N., & Cooray, A. (2017). Economic freedom and income inequality: Evidence from a Panel of Global Economies: A linear and a non-linear long-run analysis. The Manchester School, 85(1), 88-105. https://doi.org/10.1111/manc.12137   DOI
36 Areli Bermudez Delgado, N., Bermudez Delgado, E., & Saucedo, E. (2018). The relationship between oil prices, the stock market and the exchange rate: Evidence from Mexico. The North American Journal of Economics and Finance, 45, 266-275. doi:10.1016/j.najef.2018.03.006   DOI
37 Atje, R., & Jovanovic, B. (1993). Stock markets and development. European Economic Review, 37(2-3), 632-640. https://doi.org/10.1016/0014-2921(93)90053-D   DOI
38 Beck, T., & Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of Banking & Finance, 28(3), 423-442. https://doi.org/10.1016/s0378-4266(02)00408-9   DOI
39 Billmeier, A., & Massa, I. (2009). What drives stock market development in emerging markets―institutions, remittances, or natural resources? Emerging Markets Review, 10(1), 23-35. https://doi.org/10.1016/j.ememar.2008.10.005   DOI
40 Bonga-Bonga, L., & Gnagne, P.X. (2017) The impact of exchange rate volatility on capital flows in BRICS economies. MPRA Paper No. 84773
41 Boyd, J. H., Levine, R., & Smith, B. D. (2001). The impact of inflation on financial sector performance. Journal of Monetary Economics, 47(2), 221-248. https://doi.org/10.1016/s0304-3932(01)00049-6   DOI
42 Buchanan, B. G., English, P. C., & Gordon, R. (2011). Emerging market benefits, investability and the rule of law. Emerging Markets Review, 12(1), 47-60. https://doi.org/10.1016/j.ememar.2010.09.001   DOI
43 Cheng, H. F., Gutierrez, M., Mahajan, A., Shachmurove, Y., & Shahrokhi, M. (2007). A future global economy to be built by BRICs. Global Finance Journal, 18(2), 143-156. https://doi.org/10.1016/j.gfj.2006.04.003   DOI
44 Chinn, M. D. & Ito, H. (2006).What matters for financial development? Capital controls, institutions, and interactions. Journal of Development Economics, 81(1), 163-192. https://doi.org/10.1016/j.jdeveco.2005.05.010   DOI
45 Chkili, W., & Nguyen, D. K. (2014). Exchange rate movements and stock market returns in a regime-switching environment: Evidence for BRICS countries. Research in International Business and Finance, 31, 46-56. https://doi.org/10.1016/j.ribaf.2013.11.007   DOI
46 Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2), 249-272. https://doi.org/10.1016/S0261-5606(00)00048-6   DOI
47 Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450-1460. https://doi.org/10.1016/j.econmod.2012.02.014   DOI
48 Frankel, J. A. (1983). Monetary and portfolio-balance models of exchange rate determination. In: J. S. Bhandari, & B. H. Putnam (Eds.), Economic interdependence and flexible exchange rates. Cambridge, MA: MIT Press
49 Dang, V. C., Le, T. L., Nguyen, Q. K., & Tran, D. Q. (2020). Linkage Between Exchange Rate and Stock Prices: Evidence from Vietnam. The Journal of Asian Finance, Economics and Business, 7(12), 95-107. https://doi.org/10.13106/jafeb.2020.vol7.no12.095   DOI
50 El-Wassal, K.A. (2005). Understanding the growth in emerging stock markets. Journal of Emerging Market Finance, 4(3), 227-261. https://doi.org/10.1177/097265270500400302   DOI
51 Garcia, V. F., & Liu, L. (1999). Macroeconomic determinants of stock market development. Journal of Applied Economics, 2(1), 29-59. https://doi.org/10.1080/15140326.1999.12040532   DOI
52 Giannellis, N., & Koukouritakis, M. (2018). Currency misalignments in the BRIICS countries: Fixed vs. floating exchange rates. Open Economies Review, 29(5), 1123-1151. https://doi.org/10.1007/s11079-018-9477-0   DOI
53 Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438. https://doi.org/10.2307/1912791   DOI
54 Gwartney, J., Lawson, R., & Block, W. (1996) Economic freedom of the world, 1975-1995. Fraser Inst.
55 Hammoudeh, S., Sari, R., Uzunkaya, M., & Liu, T. (2013). The dynamics of BRICS's country risk ratings and domestic stock markets, US stock market and oil price. Mathematics and Computers in Simulation, 94, 277-294. https://doi.org/10.1016/j.matcom.2012.01.002   DOI
56 Ho, T. S. Y., & Michaely, R. (1988). Information quality and market efficiency. Journal of Financial and Quantitative Analysis. 23(1) 53-70. https://doi.org/10.2307/2331024   DOI
57 Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1-44. https://doi.org/10.1016/S0304-4076(98)00023-2   DOI
58 Hondroyiannis, G., & Papapetrou, E. (2001). Macroeconomic influences on the stock market. Journal of Economics and Finance, 25(1), 33-49. https://doi.org/10.1007/BF02759685   DOI
59 Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43(3), 249-267. https://doi.org/10.2307/1556394   DOI
60 Kacprzyk, A. (2016). Economic freedom: Growth nexus in European Union countries. Applied Economics Letters, 23(7), 494-497. https://doi.org/10.1080/13504851.2015.1083076   DOI
61 Karolyi, G. A. (2015) Cracking the emerging markets enigma. New York, NY: Oxford University Press
62 Khan, M. A., Kong, D., Xiang, J., & Zhang, J. (2019). Impact of institutional quality on financial development: Cross-country evidence based on emerging and growth-leading economies. Emerging Markets Finance and Trade, 1-17. https://doi.org/10.1080/1540496X.2019.1588725   DOI
63 Kose, M. A., & Ozturk, E. O. (2014). A world of change. Finance and Development, 51(3), 6-11.
64 La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1-2), 3-27. https://doi.org/10.1016/S0304-405X(00)00065-9   DOI
65 La Porta, R., Lopez‐de‐Silanes, F., Shleifer, A., & Vishny, R. W. (1997). Legal determinants of external finance. The Journal of Finance, 52(3), 1131-1150. https://doi.org/10.1111/j.1540-6261.1997.tb02727.x   DOI