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A Model of the Dynamic of the Relationship between Stock Prices and Economic Growth of Indonesia

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  • Pasrun Adam

Abstract

This study aimed to examine the dynamic of the relationship between stock prices and economic growth in Indonesia over the period from the first quarter 2004 to the fourth quarter 2013. The study analyzed two types of quarterly data, i.e., data about stock prices that referred to stock price index issued by Indonesian Stock Exchange and data of economic growth that referred to the percentage of changes in gross domestic product (GDP). To analyze the dynamic of the relationship, the general univariate causal model of LVAR was employed. Findings revealed that there was a significant dynamic of relationship between the two variables under investigation. The relationship was positive, meaning that when stock prices went up (went down), then the economic growth of Indonesia went up (went down) as well. Each 1% increase (decrease) in the stock prices was always followed by 0.09% increase (decrease) in Indonesian economic growth.

Suggested Citation

  • Pasrun Adam, 2015. "A Model of the Dynamic of the Relationship between Stock Prices and Economic Growth of Indonesia," Applied Economics and Finance, Redfame publishing, vol. 2(3), pages 12-19, August.
    • Handle: RePEc:rfa:aefjnl:v:2:y:2015:i:3:p:12-19
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    Cited by:

    1. La Saidi & Pasrun Adam & Rostin & Zainuddin Saenong & Muh. Yani Balaka & Gamsir & Asmuddin & Salwiah, 2017. "The Effect of Stock Prices and Exchange Rates on Economic Growth in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 527-533.

    More about this item

    Keywords

    stock prices; GDP; economic growth; LVAR;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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