An Empirical Study on the Relationship between Stock Market Index and the National Economy Growth: the Case of Jordan

Abstract

This paper investigates the causal relationship between stock market development and economic growth for Jordan for the period 2000-2012 using a Vector Error Correction Model (VECM). The purpose of this paper is to examine the relationship between ASE market index and Jordan's national economic development (Real GDP). Researchers applied Johansen co-integration analysis based on classical unit roots tests. The results of Granger causality tests indicated that there is a unidirectional causality between stock market development and economic growth with direction from stock market development to economic growth. Granger Co integration indicated that all t-statistics were significant which indicates that variables have long-term relationship. Unit root test showed that all sector indexes have non-standing existence; while GARCH-M revealed that research hypotheses have mixed results and were not exclusively rejected.

Keywords: Stock market; Economic growth; VAR model; Granger causality.