The current study explored the determinants of stock market development in emerging markets using the pooled ordinary least squares (OLS), fixed and random effects approaches with data ranging from 1994 to 2014. Emerging markets studied in this paper include Argentina, Brazil, Colombia, Mexico, Peru, Czech Republic, Greece, Poland, Portugal, Russia, Turkey, China, Hong Kong, Indonesia, India, Malaysia, Philippines, Republic of Korea, Thailand, Singapore and South Africa.The major factors influencing stock market development in line with empirical literature included FDI, economic growth, infrastructural development, savings, inflation, trade openness, exchange rates, banking sector development and stock market liquidity. The impact of these factors on stock market development in emerging markets was then tested using an empirical model (Equation 2). FDI, savings, economic growth, trade openness, exchange rates, banking sector development and stock market liquidity to a larger extent had a positive impact on stock market development in emerging markets. Majority of the findings on the determinants of stock market development resonate with theoretical literature (Table 4). The current study therefore urges emerging markets to implement policies that accelerate economic growth, FDI, banking sector development, savings, trade openness and stock market liquidity in order to enhance their stock market development. Future studies should take into account the dynamic nature of stock market development data. They should also address the endogeneity problem that normally characterise the relationship between stock market development and its determinants.

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What are The Determinants of Stock Market Development in Emerging Markets

Oil is one of the most important forms of energy and is a significant determinant of global economic performance. Commodities like oil are fairly homogeneous and internationally traded. The impact of dollar nominated oil prices on stock prices may not be quite relevant for Indian context. In this context, the study of crude oil prices in dollar terms along with the exchange rate would be more meaningful to understand the impact of oil prices on stock market. The study investigates the dynamic relationships between oil price, exchange rate and Indian stock market during 1993 to 2013. The estimated results of the Johansen’s cointegration test and vector error correction model suggest that there exist a long run cointegrating relationships between crude oil price and Indian stock indices, but it cannot be said with sufficient confidence that the direction of the relation in the long run is from the oil price to the Sensex. The Granger causality test also reveals that the volatility of stock prices in India can be explained to cause the movement of oil price and exchange rate in short run. The observed relationship between oil price and stock indices is not due to the effect of the exchange rate fluctuations, because the change in exchange rate has no significant impact on oil prices or stock prices in India during the study period. The variance decomposition analysis reveals that the Indian stock prices are strongly exogenous in the sense that the crude oil price or exchange rate explains only a very small portion of the forecast variance error of the market index. Finally, from the impulse response functions analysis it is noticed that a positive shock in one variable have a persistent and prolonged effect on other variables.

Crude Oil Price, Exchange Rate and Emerging Stock Market: Evidence from India

This paper aims at examining the effect of macroeconomic variables on stock market performance in Nigeria using annual time series data spanning 1981 to 2016.The data were obtained from Central Bank of Nigeria (CBN) Statistical Bulletin. Four macroeconomic variables, namely: money supply, interest rate, exchange rate and inflation rate were used as independent variables, while market capitalisation (proxy for stock market performance) was employed as the dependent variable. The results of Augmented Dickey-Fuller (ADF) test revealed that all the variables studied were stationary at first difference except money supply which was stationary at second difference. The Ordinary Least Square (OLS) regression results showed that money supply has a significant positive effect; interest rate has a significant negative effect; whereas, exchange rate has a positive but not significant effect and inflation rate has a positive but not statistically significant effect on stock market performance. The cointegration test results disclosed that there exist a long-run relationship between the macroeconomic indicators and stock market performance. The Granger Causality test results revealed that a unidirectional causality runs from money supply and exchange rate to stock market performance. In conclusion, money supply and interest rate are the true factors influencing stock market performance in Nigeria because they exhibited a significant effect on stock market performance. Whereas, exchange rate and inflation rate indicated a weak (non-significant) effect on stock market performance. Consequently, the recommendations are: monetary policies that favour the supply of money in the economy should be pursued in order to ensure a better performance of the stock market; Interest rate should be relatively low to guarantee a higher performance of the stock market because high interest rate has a significant negative effect on the Nigerian stock market.

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Effect of Macroeconomic Variables on Stock Market Performance in Nigeria

This paper studies the macroeconomic determinants of corporate bond market development with respect to the Nigerian bond market. Corporate bond market capitalization was used as the endogenous variable while macroeconomic variables form the exogenous variables of the study. The time series data generated over a period of 33 years (1980-2013) were analyzed using descriptive statistics, while the ordinary least square regression techniques involving multiple regression was applied to test the level of significance of the variables. Overall, the result reveals that fundamental macroeconomic factors such exchange rate, savings, inflation rate, banking sector development, interest rate, fiscal balance, bond yield and foreign direct investment are main drivers of corporate bond market development in Nigeria. The results further revealed that the macroeconomic factors have no common stimulating pattern in driving the corporate bond market for development. Savings and exchange tends to be more significant than other macroeconomic factors within the period under review. Thus, macroeconomic factors matter a lot in the development of corporate bond in Nigeria. Keyword: Corporate bond, Nigeria, macroeconomics, bond market development. Introduction In Nigeria, bond market has increasingly become important in the development of the Nigerian emerging economy. A bond is a long term financial debt instrument; a generic name for a tradable loan security usually issued to raise capital (Sec, 2010). The bond market is an integral aspect of the capital market. Interestingly, the Nigerian bond market is composed of both corporate bonds and government bond. Globally, the bond market, no doubt forms the mechanism through which the savings surplus unit of the economy is transformed into medium and long-term investment in the economy. As, such, bond markets have been acclaimed by many researchers as a ‘big’ player in economic growth and development. For instance, citing the significant role of bond market in Asian economic crisis of 1997, Mu, Phelps and Stotsky (2013) argue that bond market aids sustainable economic stability through intermediating between capital savers and capital user. It is unarguable that bond market aids channeling of more funds into domestic investment. Apparently, there are controversies as to whether government bonds are crowding out corporate bonds existence in Nigerian bond market; or why is corporate bond allegedly low in volume compared to the volume of government bonds being traded in the Nigerian bonds market. For Arabian Journal of Business and Management Review (Oman Chapter) Vol. 6, No.2, September 2016 26 example, The types of bonds that are currently being traded in Nigeria bond market are the federal government bonds with current outstanding volume of N4,591.19 billion, agency bonds with current outstanding volume of N1,301.62 billion, sub-national bonds (state government bonds) with current outstanding volume of N483.24 billion, FGN Eurobonds with outstanding volume of 1.500.00 billion, corporate bonds with an outstanding volume of 141.62 billion, corporate Eurobonds with outstanding volume of N4,760.00 billion, (Egene and Abiodeen, 2014). Prior studies suggest perhaps that government bonds have the tendency to constrain corporate bonds issuance in Nigeria. Instances, abound first, the rate at which government issues bonds for the purpose of infrastructural development in Nigeria is higher than corporate bonds. Second, Governments are allowed to issue bonds at various levels including federal government, state government, local government and some time at community level (ie, municipal bonds). A noticeable example is the issuance of N75 billion federal government special purpose bonds of 2014 which was issued to settle pension amount outstanding and between 2003 and 2014. More so, Federal Capital Territory (FCT alone) has funded N4.612 trillion of the total deficits of N7.986 trillion arising from the fiscal operations through bond issuance in the Nigerian domestic bond market (Nwankwo, 2014). Various state governments also issue state government bonds at different interval, in as much as they meet the Central Bank of Nigeria requirement for issuance of such bonds in the country. Third, the rising rate of budget deficit in Nigeria has left the country with the only option of raising funds from the bond market as the available alternative. According to Nwankwo (2014: 24): In 2003, the Nigerian fiscal deficit stood at N202.72 billion, representing 2.04% of the nation’s GDP; dropping in 2004, to N172.6 billion or 1.51 % of GDP. By 2005, national deficit level fell again to N161.86 billion or 1.11% of GDP; before beginning soaring to N341.86 or 2.35% of GDP and representing a 111.79% jump. The deficit level jumped again to N580.19 billion or 3.64%; and then N537.95 billion in 2008. In 2009, deficit was N836.6 billion, 3.02% GDP. The figure more than doubled once more as government’s revenue obviously stagnated as needs mounted federal government’s fiscal operations resulted in a 2010 deficit of N1.993 trillion, the highest within the 10 years period. It dropped to N1.136 trillion or 2.96% in the following year; and N1.135 trillion or 2.85% in 2012. The 2013 deficit was forecast to reduce bellow the trillion Naira mark at N887.06. Again, there are existing research controversy on the determinants of bond market development in general and corporate bonds in particular. To say the least, there are conflicting views on what actually stimulate bond markets (and corporate bond in particular) in Nigeria. While some scholar’s argue that bond market development is stimulated by fundamental institutional factors, others argued on the contrary that corporate bond market development is perhaps stimulated by fundamental macroeconomic factors such as inflation rate, exchange rate, banking sector development, trade openness, fiscal balances, foreign direct investment, savings among other (see for instance Becker and Ivashina, 2012; Hakansson, 1999; Adelegan and Radzewicz-Back, 2009; Xiong and Yan, 2010). Essentially, those who argue in the macroeconomic perspective perhaps maintain that macroeconomic variables are indispensible elements in corporate bond market development. For example, every corporate bond market is characterized by macroeconomic factors and basic economic challenges. In the Nigerian case, the corporate bond market is characterized by exchange rate volatility, high interest rate, high inflation rate, poor serving culture and bank-dominated economy. These challenges have created undue reliance on bank dominated finances over market based sources such as bonds, equity and debenture capital. Along this line of argument, Eichengreen and Luengnamamifehai (2006) strongly argue that where bank has the weakness of providing sources of Arabian Journal of Business and Management Review (Oman Chapter) Vol. 6, No.2, September 2016 27 finance, the bond market has opposite strength because banks are ideally placed to provide “patience finance” while access to bond market sources of finance is long term basis. The implication of these challenges is not only the underdevelopment of the Nigerian corporate bond markets but also the predisposition of Nigeria to greater risk on the global market. Therefore, due to the important of corporate bonds as earlier mentioned, and the apparent drought of corporate bonds in the Nigerian stock market, it makes a research sense to find out what spurs corporate bonds market development in Nigeria with special attention to the roles of macroeconomic factors. Literature Review In this section, both the conceptual, theoretical and related empirical literature are reviewed. (a)Conceptual Review A bond is generic name given to a tradable loan security issued by either corporate bond (companies) or governments for the purpose of raising capital (funds) (SEC, 2010). According to SEC, bond is an interest bearing security. It guarantees the holder the financial obligation of repayment of capital at future specific date and a fixed rate of interest. This fixed rate of interest is often called coupon. Again, bond can generally be conceptualized as a financial debt instrument (Ogilo, 2014). By this definition, it means that a borrower issues bond as an issuer, with the financial obligation to pay-back to the lender both the amount borrowed plus interest within a defined time frame. In this case, the lender is regarded as the investor. Suffice it to say therefore, that in a general simple market language, the bond issuer is the seller while the lender is the buyer. Further, SEC (2010:2) specifically opines that a bond is: a generic name for a tradable loan security issued by governments and companies as a means of raising capital. The bond is an interest bearing security. It guarantees its holder both repayment of capital at a future specified date (Maturity date) and a fixed rate of interest also known as the coupon. Therefore, simply put, when a firm or corporation or government needs to raise funds from public on long term arrangement, it often achieves such financial needs by selling or issuing securities. These instruments/securities can be described as bond. Numerous corporations worldwide, including developed and developing economies consistently issue bonds as a reliable alternative source of finance. Aringui (2012) also argues that a bond is not only a “debt instrument” but also a tradable financial instrument that serves the purpose of raising capital which will take the maturity period of more than one year. To him, a bond must have an attribute of negotiability, which makes it tradable in the markets. Moreso, according to Mishkin and Eakins (2000) bonds are securities that represent a debt owned by the issuer to the investor. They maintain that bonds bring about financial obligations to the issuer; such that the obligation requires timely repayment of interest. A bond contains a f

Corporate Bond Market Development in Nigeria : Does Macroeconomic Factors Matter ?

Background: Stock market plays a crucial role in the financial system of a coun­try It can be viewed as a channel through which resources are properly chan­nelized It enables the governments and industries to raise long-term capital for financing new projects The stock markets of developing economies are likely to be sensitive to various macro-economic factors such as GDP, imports, exports, exchange rates etc When there is high demand on financial products, as a con­stituent of financial market, and ultimately stock market needs to develop Many factors can be a signal to stock market participants to expect a higher or lower return when investing in stock and one of these factors are macroeconomic vari­ables Thus, macro-economic variables tend to affect stock market developments

Objective: This study examines the linkage between stock market prices (NEPSE index) and five macro-economic variables, namely; real GDP, broad money supply, interest rate, inflation and exchange rate using an autoregres­sive distributed lag (ARDL) model to explain the behavior of the Nepal Stock Exchange Index

Methods: The study uses error correction model (ECM) which is delivered from ARDL model through simple linear transformation to integrate short run adjustments with long run equilibrium without losing long run information The analysis has been done by using 25 years’ annual data from 1994 to 2019

Findings: The result indicates that the fluctuation of NEPSE Index in long run is strongly associated with broad money supply, interest rate, inflation, and ex­change rate The GDP, money supply and exchange rate can positively define in short run while only money supply holds positive relationship in long run

Conclusion: Though Nepalese stock market is not yet well developed and matured, broad money supply, interest rate, inflation and exchange rate are major factors affecting stock market price of Nepal Therefore, policies and strategies should be made and directed taking these into considerations

Implication: The findings of research can be helpful to understand the be­havior of Nepalese stock market and develop policies for market stabilization

Macroeconomic Determinants of Stock Market Prices in Nepal

Financial systems have been found to have a positive influence on the economic development of most countries. The stock market, which is also a component of the financial system is said to play an integral role in economic growth. This paper examines the macroeconomic determinants of stock market development in Ghana for the period 1992 to 2012 using annual secondary data from Bank of Ghana Quarterly Economic Bulletins, Ghana Statistical Service, Ghana Stock Exchange Market Statistics, the World Bank and IMF’s International Financial Statistics. The macroeconomic indicators such as the real income (GDP per capita income), domestic saving, stock market liquidity, financial intermediary growth, macroeconomic stability (inflation) and private capital flows with stock market capitalization used as a proxy for the study were collected and used for the analysis. These variables were examined to establish a relationship with stock market developments based on a linear regression model. The regression analysis found stock market liquidity to be statistically significant to stock market developments as opposed to the other determinants (such as macroeconomic stability (inflation) real income and domestic savings and private capital flows) which were found to be non-significant. This result suggests that macroeconomic stability (inflation), real income, domestic savings and private capital flows proved not to have any significant impact on stock market development, since their regression coefficients were not statically significant at the 5% level of significance.

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Sandra A Asomaning

Papers

Macroeconomic Determinants of Stock Market Development in Ghana