Studying the Stock Market – Economic Activity Nexus in Poland with a VAR‑VECM Approach
DOI:
https://doi.org/10.18778/0208-6018.348.04Keywords:
WIG, Gross Domestic Product, vector autoregression, cointegration, error correction modelAbstract
The paper discusses the links between stock market performance and real economic activity and presents results of an empirical inquiry into dynamic relationships between the main stock index quoted on the Warsaw Stock Exchange (WIG) and GDP in Poland over the years 1995–2019. In many empirical studies for highly developed countries not only short‑run dynamic interactions but also a long‑run cointegrating relationship between the stock index and output have been found. Previous studies for Poland reported mainly short‑run linkages between stock returns and changes of economic activity whereas the evidence for a long‑run cointegrating relationship is still quite scarce. In this paper, the VAR‑VECM methodology with the Johansen tests for cointegration is used to study a substantially longer quarterly data interval than has been investigated so far. Research results show that stock returns Granger‑cause GDP growth with up to three‑quarters lead. The evidence for the existence of a long‑term cointegrating relationship has also been found.
Downloads
References
Adamopoulos A. (2010), Stock Market and Economic Growth: An Empirical Analysis for Germany, “Business and Economics Journal”, vol. 1, pp. 1–12, http://astonjournals.com/manuscripts/Vol2010/BEJ-1_Vol2010.pdf (accessed: 10.01.2020).
Google Scholar
Barro R. (1990), The Stock Market and Investment, “Review of Financial Studies”, vol. 3, no. 1, pp. 115–131.
Google Scholar
Binswanger M. (2000), Stock Market Booms and Real Economic Activity: Is this Time Different?, “International Review of Economics and Finance”, vol. 9, pp. 387–415.
Google Scholar
Binswanger M. (2004), Stock Returns and Real Activity in the G-7 Countries: Did the Relationship Change during the 1980s?, “The Quarterly Review of Economics and Finance”, vol. 44, pp. 237–252, http://doi.org/10.1016/j.qref.2003.07.001
Google Scholar
Black A. J., McMillan D. G., McMillan F. J. (2015), Cointegration between stock prices, dividends, output and consumption: Evidence and forecasting ability for 29 markets, “Review of Accounting and Finance”, vol. 14, no. 1, pp. 81–103, https://doi.org/10.1108/RAF-09-2013-0103
Google Scholar
Brainard W., Tobin J. (1968), Pitfalls in Financial Model‑building, “American Economic Review”, vol. 58, no. 2, pp. 99–122.
Google Scholar
Brzeszczyński J., Gajdka J., Schabek T. (2009), Koniunktura giełdowa a zmiany w realnej sferze gospodarki w Polsce, “Przegląd Organizacji”, no. 7–8, pp. 3–9.
Google Scholar
Campbell J. Y., Shiller R. J. (1989), The Dividend‑Price Ratio and Expectations of Future Dividends and Discount Factors, “The Review of Financial Studies”, vol. 1, no. 3, pp. 195–228.
Google Scholar
Chen N. F. (1991), Financial Investment Opportunities and the Macroeconomy, “Journal of Finance”, vol. 46, no. 2, pp. 529–554.
Google Scholar
Cheung Y., Ng L. (1998), International evidence on the stock market and aggregate economic activity, “Journal of Empirical Finance”, no. 5, pp. 281–296.
Google Scholar
Choi J. J., Hauser S., Kopecky K. (1999), Does the Stock Market Predict Real Activity? Time Series Evidence from the G-7 Countries, “Journal of Banking & Finance”, vol. 23, pp. 1771–1792.
Google Scholar
Domian D., Louton D. (1997), A Threshold Autoregressive Analysis of Stock Returns and Real Economic Activity, “International Review of Economics and Finance”, vol. 6, pp. 167–179.
Google Scholar
Dickey D. A., Fuller W. A. (1981), Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root, “Econometrica”, vol. 49, no. 4, pp. 1057–1072.
Google Scholar
Enders W. (2015), Applied Econometric Time Series, Fourth Edition, John Wiley & Sons, Inc., New York.
Google Scholar
Fama E. (1981), Stock Returns, Real Activity, Inflation, and Money, “American Economic Review”, vol. 71, no. 4, pp. 545–565.
Google Scholar
Fama E. (1990), Stock Returns, Expected Returns, and Real Activity, “Journal of Finance”, vol. 45, no. 4, pp. 1089–1108.
Google Scholar
Fiszeder P., Rowiński S. (2012), Modelowanie zależności pomiędzy wybranymi procesami makroekonomicznymi a warszawskim indeksem giełdowym, “Ekonomia i Prawo”, vol. 10, no. 3, pp. 153–167.
Google Scholar
Fundowicz J. (2003), Koniunktura giełdowa a koniunktura makroekonomiczna, [in:] K. Piech, S. Pangsy‑Kania (eds.), Diagnozowanie koniunktury gospodarczej w Polsce, Dom Wydawniczy Elipsa, Warszawa, pp. 141–154.
Google Scholar
Galinger G. (1994), Causality Tests of the Real Stock Returns – Real Activity Hypothesis, “The Journal of Financial Research”, vol. 17, no. 2, pp. 271–288.
Google Scholar
Hanousek J., Filer R. K. (2000), The Relationship between Economic Factors and Equity Markets in Central Europe, “Economics in Transition”, vol. 8, no. 3, pp. 623–638.
Google Scholar
Harvey C. R. (1989), Forecasts of Economic Growth from the Bond and Stock Markets, “Financial Analysts Journal”, vol. 45, no. 5, pp. 38–45.
Google Scholar
Hassapis C., Kalyvitis S. (2002), Investigation Links between Growth and Real Stock Price Changes with Empirical Evidence from the G-7 Countries, “The Quarterly Review of Economics and Finance”, vol. 42, pp. 543–575.
Google Scholar
Horobet A., Dumitrescu S. (2009), On the Causal Relationships Between Monetary, Financial and Real Macroeconomic Variables: Evidence from Central and Eastern Europe, “Economic Computation and Economic Cybernetics Studies and Research”, vol. 43, no. 3, pp. 77–94.
Google Scholar
Johansen S. (1988), Statistical Analysis of Cointegration Vectors, “Journal of Economic Dynamics and Control”, vol. 12, pp. 231–254.
Google Scholar
Johansen S., Juselius K. (1990), Maximum Likelihood Estimation and Inference on Cointegration with Applications to Demand for Money, “Oxford Bulletin of Economics and Statistics” vol. 52, pp. 169–210.
Google Scholar
Kusideł E. (2000), Modele wektorowo‑autoregresyjne VAR: metodologia i zastosowania, Absolwent, Łódź
Google Scholar
Kwiatkowski D. P., Phillips C. B., Schmidt P., Shin Y. (1992), Testing the null hypothesis of stationarity against the alternative of a unit root, “Journal of Econometrics”, vol. 54, no. 1–3, pp. 159–178.
Google Scholar
Laopodis N., Sawhney B. (2002), Dynamic Interactions between Main Street and Wall Street, “The Quarterly Review of Economics and Finance”, vol. 42, no. 4, pp. 803–815.
Google Scholar
Lazonick W. (2016), The Value‑Extracting CEO: How Executive Stock‑Based Pay Undermines Investment in Productive Capabilities, Institute for New Economic Thinking Working Paper Series, no. 54, http://dx.doi.org/10.2139/ssrn.2993933
Google Scholar
Lee B. S. (1992), Causal Relations among Stock returns, Interest Rates, Real Activity, and Inflation, “Journal of Finance”, vol. 47, no. 4, pp. 1591–1603.
Google Scholar
Lyocsa S. (2014), Growth‑returns nexus: Evidence from three Central and Eastern European countries, “Economic Modelling”, vol. 42, pp. 343–355, http://dx.doi.org/10.1016/j.econmod.2014.07.023
Google Scholar
Lyocsa S., Baumohl E. (2014), Stability of the “returns‑growth” relationship in G7: The dynamic conditional lagged correlation approach, “Borsa Istanbul Review”, vol. 14, pp. 48–56.
Google Scholar
Lyocsa S., Baumohl E., Vyrost T. (2011), The Stock Markets and Real Economic Activity. New Evidence from CEE, “Eastern European Economics”, vol. 49, no. 4, pp. 6–23, http://doi.org/10.2753/EEE0012-8775490401
Google Scholar
Malkiel B. (1999), A Random Walk down Wall Street, W. W. Norton & Company, New York.
Google Scholar
Morck R., Shleifer A., Vishny R. (1990), The Stock Market and Investment: Is the Market a Sideshow?, “Brookings Papers on Economic Activity”, vol. 1990, no. 2, pp. 157–202.
Google Scholar
Nasseh A., Strauss J. (2000), Stock Prices and Domestic and International Macroeconomic Activity: A Cointegration Approach, “The Quarterly Review of Economics and Finance”, vol. 40, pp. 229–245.
Google Scholar
Panopoulou E., Pittis N., Kalyvitis S. (2010), Looking far in the past: revisiting the growth‑returns nexus with non‑parametric tests, “Empirical Economics”, vol. 38, no. 3, pp. 743–766.
Google Scholar
Park S. (1997), Rationality of Negative Stock‑price Responses to Strong Economic Activity, “Financial Analysts Journal”, vol. 53, no. 5, pp. 52–56.
Google Scholar
Peiro A. (1996), Stock Prices, Production and Interest Rates: Comparison of Three European Countries with the USA, “Empirical Economics”, vol. 21, pp. 221–234.
Google Scholar
Prats M. A., Sandoval B. (2016), Stock Market and Economic Growth in Eastern Europe, “Economics Discussion Papers”, no. 2016–35, Kiel Institute for the World Economy, http://www.economics‑ejournal.org/economics/discussionpapers/2016-35 (accessed: 10.01.2020).
Google Scholar
Rangvid J. (2006), Output and expected returns, “Journal of Financial Economics”, vol. 81, no. 3, pp. 595–624, http://doi.org/10.1016/j.jfineco.2005.07.010
Google Scholar
Ratajczak M. (2012), Finansyzacja gospodarki, “Ekonomista”, no. 3, pp. 281–302.
Google Scholar
Rubaszek M. (2004), Analiza długookresowej zależności pomiędzy indeksem giełdowym i wzrostem gospodarczym, “Zeszyty Naukowe Uniwersytetu Szczecińskiego”, no. 389, pp. 483–492.
Google Scholar
Sawhney B., Annoruo E., Feridun M. (2006), Long‑run Relationship Between Economic Growth and Stock Returns: An Empirical Investigation on Canada and the United States, “Journal of Economics”, vol. 54, no. 6, pp. 584–596.
Google Scholar
Schwert W. (1990), Stock Returns and Real Activity: A Century of Evidence, “Journal of Finance”, vol. 45, no. 4, pp. 1237–1257.
Google Scholar
Shiller R. (2000), Irrational Exuberance, Princeton University Press, Princeton.
Google Scholar
Siegel J. (2014), Stocks for the Long Run 5/E: The Definitive Guide to Financial Market Returns and Long‑Term Investment Strategies, 5th ed., McGraw‑Hill, New York.
Google Scholar
Stąpała J. (2012), Tempo zmian koniunktury gospodarczej i giełdowej w Polsce w latach 1998– 2011, “Studia Ekonomiczne. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Katowicach”, no. 3, pp. 371–392.
Google Scholar
Stock J. H., Watson M. W. (2003), Forecasting Output and Inflation: The Role of Asset Prices, “Journal of Economic Literature”, vol. 41, no. 3, pp. 788–829.
Google Scholar
Ülkü N., Kuruppuarachchi D., Kuzmicheva O. (2017), Stock market’s response to real output shocks in Eastern European frontier markets: A VARwAL model, “Emerging Markets Review”, vol. 33, pp. 140–154, https://doi.org/10.1016/j.ememar.2017.09.004
Google Scholar
Vazakidis A., Adamopoulos A. (2009), Stock Market Development and Economic Growth, “American Journal of Applied Sciences”, vol. 6, no. 11, pp. 1933–1941.
Google Scholar
Widz E. (2016), Wahania indeksów giełdowych a wahania koniunktury gospodarczej w Polsce, “Acta Universitatis Lodziensis. Folia Oeconomica”, no. 4(323), pp. 155–168, http://dx.doi.org/10.18778/0208-6018.323.11
Google Scholar
Wyżnikiewicz B. (2000), Giełda i gospodarka. Analiza makroekonomiczna, “Przegląd Organizacji”, no. 7–8, pp. 7–11.
Google Scholar
Ząbkowicz A. (2009), Wzrost znaczenia dochodów z operacji finansowych w korporacjach niefinansowych (financialization) – kontekst instytucjonalny, “Organizacja i Kierowanie”, no. 2, pp. 25–40.
Google Scholar
Downloads
Published
How to Cite
Issue
Section
