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The macroeconomic drivers of stock market development: evidence from Hong Kong

Sin-Yu Ho (Department of Economics, University of South Africa, Pretoria, South Africa)
Nicholas M. Odhiambo (Department of Economics, University of South Africa, Pretoria, South Africa)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 22 July 2019

Issue publication date: 20 April 2020

Abstract

Purpose

The purpose of this paper is to examine the macroeconomic drivers of stock market development in Hong Kong during the period 1992Q4-2016Q3. Specifically, it investigates the impact of banking sector development, economic growth, inflation rate, exchange rate, trade openness and stock market liquidity on stock market development.

Design/methodology/approach

This paper uses quarterly time-series data covering the period 1992Q4-2016Q3, which have been obtained from various reliable sources. The study uses the autoregressive distributed lag bounds testing procedure to identify both the long- and short-run macroeconomic drivers of stock market development in Hong Kong.

Findings

We find that banking sector development and economic growth have positive impacts on stock market development, whereas the inflation rate and the exchange rate have negative impacts on stock market development both in the long and short run. In addition, the results show that trade openness has a positive long-run impact but a negative short-run impact on stock market development.

Originality/value

Despite the phenomenal growth of stock market in Hong Kong, there are, to the best of the authors’ knowledge, no relevant studies on the macroeconomic drivers of stock market development in Hong Kong. Therefore, this paper endeavours to enrich the literature by examining the macroeconomic drivers of stock market development in Hong Kong during the period 1992Q4-2016Q3.

Keywords

Citation

Ho, S.-Y. and Odhiambo, N.M. (2020), "The macroeconomic drivers of stock market development: evidence from Hong Kong", Journal of Financial Economic Policy, Vol. 12 No. 2, pp. 185-207. https://doi.org/10.1108/JFEP-11-2018-0163

Publisher

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Emerald Publishing Limited

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