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Stock Returns and Output Growth in Emerging and Advanced Economies

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  • Paolo Mauro

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

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/89.

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Length: 34
Date of creation: 01 Apr 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/89

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Related research

Keywords: Stock markets; Developed countries; Developing countries; Economic growth; stock returns; stock market; correlation; stock price; statistics; international financial statistics; stock prices; financial statistics; stock market capitalization; forecasting; independent variables; stock price indices; international finance corporation; international finance; stock market regulations; estimation technique; bonds; time series; government bonds; equations; standard errors; logarithms; real variables; stock market development; term bonds; stock option; stock price index; estimation method; significance level; cointegration; independent variable; dummy variable; predictability; estimation of parameters; vector autoregression; stock exchange; logarithm; financial structure; stock exchanges; stockholders; short-term bonds; mean group estimator; nonlinearity; functional form; stock market turnover; emerging stock markets; financial markets; financial market; mean square; stock market movements; mean group; econometrics;

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References

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  1. Jay Choi, Jongmoo & Hauser, Shmuel & Kopecky, Kenneth J., 1999. "Does the stock market predict real activity? Time series evidence from the G-7 countries," Journal of Banking & Finance, Elsevier, vol. 23(12), pages 1771-1792, December.
  2. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  3. Olivier Blanchard & Changyong Rhee & Lawrence Summers, 1990. "The Stock Market, Profit and Investment," NBER Working Papers 3370, National Bureau of Economic Research, Inc.
  4. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  5. 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.
  6. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  7. Mullins, M. & Wadhwani, S., 1988. "The Effect Of The Stock Market On Investment: A Comparative Study," Papers 329, London School of Economics - Centre for Labour Economics.
  8. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  9. Anthony J. Richards, 1996. "Volatility and Predictability in National Stock Markets: How Do Emerging and Mature Markets Differ?," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 461-501, September.
  10. David K. Backus & Patrick J. Kehoe, 1991. "International evidence on the historical properties of business cycles," Staff Report 145, Federal Reserve Bank of Minneapolis.
  11. Schwert, G William, 1990. " Stock Returns and Real Activity: A Century of Evidence," Journal of Finance, American Finance Association, vol. 45(4), pages 1237-57, September.
  12. Barro, Robert J, 1990. "The Stock Market and Investment," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 115-31.
  13. Fama, Eugene F, 1990. " Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
  14. Mauro, Paolo, 2003. "Stock returns and output growth in emerging and advanced economies," Journal of Development Economics, Elsevier, vol. 71(1), pages 129-153, June.
  15. Wasserfallen, Walter, 1989. "Macroeconomics news and the stock market: Evidence from Europe," Journal of Banking & Finance, Elsevier, vol. 13(4-5), pages 613-626, September.
  16. Stanley Fischer & Robert C. Merton, 1985. "Macroeconomics and Finance: The Role of the Stock Market," NBER Working Papers 1291, National Bureau of Economic Research, Inc.
  17. Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
  18. Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-85, May.
  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.
  20. Anthony J. Richards, 1996. "Volatility and Predictability in National Stock Markets," IMF Working Papers 96/29, International Monetary Fund.
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