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Modelling Stock Exchange Index Returns in Different GDP Growth Regimes

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  • Alenka Kavkler
  • Mejra Festić

Abstract

During different GDP growth regimes, the dynamics of global financial markets impacts the Slovenian stock exchange with varying intensity. We propose a smooth transition regression model to explain Slovene stock exchange index returns employing financial and macroeconomic variables. According to our model, the reaction of the stock market to several of the explanatory variables depends on the magnitude of GDP growth. The weaker relationship between Slovene stock exchange index returns and S&P 500 returns in the period of lower or negative GDP growth could be explained by less developed financial market in Slovenia and therefore not closely linked interchange of securities.

Suggested Citation

  • Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, University of Economics, Prague, vol. 2011(1), pages 3-22.
  • Handle: RePEc:prg:jnlpep:v:2011:y:2011:i:1:id:384:p:3-22
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    References listed on IDEAS

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    More about this item

    Keywords

    GDP growth regimes; smooth transition regression; stock returns;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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