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Stock returns and output growth in emerging and advanced economies

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  • Mauro, Paolo

Abstract

This paper studies the correlation between output growth and lagged stock returns in a panel of emerging market economies and advanced economies. It finds that the correlation is as strong in emerging market economies as in advanced economies. Asset prices therefore contain valuable information to forecast output also in emerging market economies. Moreover, the paper finds that the strength of the correlation between output growth and lagged stock returns is significantly related to a number of stock market characteristics, such as the number of listed domestic companies and initial public offerings and, especially, a high market capitalization to GDP ratio and English legal origin.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 71 (2003)
Issue (Month): 1 (June)
Pages: 129-153

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Handle: RePEc:eee:deveco:v:71:y:2003:i:1:p:129-153

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Web page: http://www.elsevier.com/locate/devec

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References

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  1. G. William Schwert, 1990. "Stock Returns and Real Activity: A Century of Evidence," NBER Working Papers 3296, National Bureau of Economic Research, Inc.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
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  14. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
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  16. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  17. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
  18. Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64 Elsevier.
  19. Asprem, Mads, 1989. "Stock prices, asset portfolios and macroeconomic variables in ten European countries," Journal of Banking & Finance, Elsevier, vol. 13(4-5), pages 589-612, September.
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