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Stock Market Development and Economic Performance: The Case of Mexico

Author

Listed:
  • Ramon A. Castillo-Ponce

    (California State University, Los Angeles and Universidad Autónoma de Baja California)

  • Maria De Lourdes Rodriguez-Espinosa

    (Universidad Tecnológica de la Mixteca)

  • Edgar David Gaytan-Alfaro

    (Universidad Autónoma de Zacatecas)

Abstract

We evaluate the association between stock market development and the aggregate economy for the long-run and the short-run. We perform cointegration and common cycle tests considering various stock market indicators, real GDP and industrial production for the Mexican economy. While controlling for structural breaks in the series, we identify the existence of common trends but not common cycles. Specifically, stock market activity and real variables exhibit a positive and significant relationship in the long-run; however, they appear to have different responses to transitory shocks. These results confirm that stock market development is conducive to economic growth.

Suggested Citation

  • Ramon A. Castillo-Ponce & Maria De Lourdes Rodriguez-Espinosa & Edgar David Gaytan-Alfaro, 2015. "Stock Market Development and Economic Performance: The Case of Mexico," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 30(1), pages 41-56, Abril.
    • Handle: RePEc:ila:anaeco:v:30:y:2015:i:1:p:41-56
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    More about this item

    Keywords

    Economic Growth; Financial Markets; Efficient Market Hypothesis; Cointegration; Common Cycles;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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