The Impact of Crises on the Relationship between Stock Market Development and Macroeconomic Variables: Evidence from Hong Kong and Singapore
Dynamic linkages between macroeconomic factors and stock market developments in the economies of Hong Kong and Singapore are the subject of investigation in this paper. These city-states belong to the world's most globalised economies and are two of the world's four largest financial centres. In the crisis years, both these countries experienced a decline in GDP, faced the threat of deflation, and their foreign trade turnover decreased. The crisis also affected the financial sector. This paper aims to ascertain the impact of structural economic changes, namely the financial crisis, on the prosperity of these advanced economies. The basic characteristics of determinants of economic development and the analysis of the mutual relationships of selected macroeconomic indicators with the financial markets serve to meet the aim of this paper. The macroeconomic variables used in most research are GDP, the interest rate, the inflation rate, money supply and the unemployment rate. To test the dependence of these indicators, a regression model was constructed, and the period from 2005 to 2016 was chosen for observation. From the linear regression equation, it is obvious that the unemployment rate, the exchange rate and the interest rate have a prevailing negative effect on equity returns, in contrast to money supply, which has a prevailing positive effect. The Chow test confirms that the global financial crisis at the end of 2008 had a negative impact on the predictive ability of the chosen linear regression analysis in the long-term time horizon in both countries. (original abstract)
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