scholarly journals Interactions between the Real Economy and the Stock Market: A Simple Agent-Based Approach

2012 ◽  
Vol 2012 ◽  
pp. 1-21 ◽  
Author(s):  
Frank Westerhoff
Keyword(s):  
Stock Market ◽  
Economic Activity ◽  
Real Economy ◽  
Agent Based ◽  
The Real ◽  
Goods Market ◽  
Numerical Tools ◽  
Market Approach ◽  
Fundamental Values

We develop a simple behavioral macromodel to study interactions between the real economy and the stock market. The real economy is represented by a Keynesian-type goods market approach while the setup for the stock market includes heterogeneous speculators. Using a mixture of analytical and numerical tools we find, for instance, that speculators may create endogenous boom-bust dynamics in the stock market which, by spilling over into the real economy, can cause lasting fluctuations in economic activity. However, fluctuations in economic activity may, by shaping the firms' fundamental values, also have an impact on the dynamics of the stock market.

Dynamic interactions between stock markets and the real economy

2016 ◽  
Vol 11 (4) ◽  
pp. 715-746 ◽  
Author(s):  
Nikiforos T. Laopodis ◽  
Andreas Papastamou
Keyword(s):  
Economic Development ◽  
Stock Market ◽  
Methodological Approach ◽  
Financial System ◽  
Cointegration Analysis ◽  
Policy Implications ◽  
Real Economy ◽  
Dynamic Interactions ◽  
Content Type ◽  
The Real

Purpose The purpose of this paper is to re-examine the relationship between a country’s aggregate stock market and general economic development for 14 emerging economies for the period from 1995 to 2014. Design/methodology/approach The methodological approach of the paper is multifold. First, the authors use cointegration analysis to determine the simple dynamics among the variables. Second, the authors utilize vector autoregression analysis to study the dynamics among the variables for the 14 countries. Third, the authors employ panel analysis to determine common variations among the variables and across countries. Findings When examining the linkage between the stock market and economic development, proxied by gross domestic product growth or with gross fixed capital formation growth, the authors did not find a meaningful relationship between them. However, when the authors included additional control variables strong, dynamic interactions between the two magnitudes surfaced. Specifically, it was found that the stock market is positively and robustly correlated with contemporaneous and future real economic development and, thus, it directly contributed to a country’s economic development either through the production of goods and services or the accumulation of real capital. Thus, it can be inferred that the stock market alone is not capable of boosting economic development in these countries unless being part of a comprehensive financial system (which includes banks) as well as investment in real capital. Research limitations/implications The policy implications are clear. Government authorities must recognize that the stock market alone is not a driver of economic development and that a sound, efficient financial system (which includes banks) must be present in order to contribute and foster economic development. Originality/value The study is original in the sense that it examines various financial and economic variables to determine the degree of (or dynamic interactions among) the stock market and the real economy for each and all emerging markets in the sample.

scholarly journals ROLE OF THE FINANCIAL SECTOR IN FINANCING THE ENTERPRISES OF THE REAL SECTOR OF THE ECONOMY

2018 ◽  
pp. 78-84
Author(s):  
Dmytro Malysh
Keyword(s):  
Stock Market ◽  
Interest Rates ◽  
Banking Sector ◽  
Financial Sector ◽  
Bank Loans ◽  
Positive Trend ◽  
Real Sector ◽  
Real Economy ◽  
The Real

Introduction. Financial sector plays an important role in the financing of business entities in the real economy sector. A possibility of rising funds through the stock or banking sector enables substantially to expand the scope of enterprises. However, the presence of permanent financial crises does not allow companies to use these opportunities in full. Therefore, the assessment of state and trends of the stock and banking sectors in the context of the use of their funds to finance companies in the real sector of the economy becomes important. Purpose. The article aims to identify contemporary issues of development of the stock and banking sectors in the context of their ability to finance companies in the real economy. Method. In order to achieve the goal of the research we have used the following methods: method of structural and dynamic analysis and method of economic and statistical analysis of the development of the stock and banking sectors of Ukraine. Results. It has been determined that the deterioration of the stock market in Ukraine led to its exclusion from the list of marginal markets. The largest segment of the Ukrainian stock and banking sector services the issuers, which are owned by the state. At the same time, the financial sector has features of bank-centeredness since banks play a leading role in financing of companies and in transactions of the stock market. Ukrainian stock market mainly carries out operations with government bonds and only a small part of operations provides financing for the activities of companies through the issue of stocks and bonds. The share of long-term sources of funding is gradually decreasing and it is critically low for economic growth of the country. The tempos of providing long-term and short-term bank loans for the company are slowing down. A positive trend is the reduction of interest rates on loans. There is a need to develop effective measures for using opportunities of the stock and banking sectors as well for financing companies in the real sector of the economy.

scholarly journals Foreign direct investment and the Covid-19 pandemic: The real economy perspective and theoretical implications

2021 ◽  
pp. 90-99
Author(s):  
Marian Gorynia ◽  
Piotr Trąpczyński
Keyword(s):  
International Economic ◽  
Foreign Direct Investment ◽  
Economic Activity ◽  
Direct Investment ◽  
Business Models ◽  
Theoretical Perspective ◽  
Primary Data ◽  
Real Economy ◽  
Theoretical Concepts ◽  
The Real

Purpose: The objective of this chapter is to discuss the effects of the Covid-19 pandemic on the international operations of firms, with a particular focus on foreign direct investment. Design/methodology/approach: The real economy perspective was adopted, whereby basic relationships in terms of the development of FDI flows and transactions worldwide were analyzed. In addition, primary data from a survey of internationally operating Polish firms were analyzed in order to shed additional light on the influence of the pandemic on international economic activity. In addition to formulating observations with regard to general patterns emerging from the data, an attempt has been made to outline the likely theoretical implications of the pandemic for FDI research. Findings: In the short term, there was a significant limitation of FDI, caused mainly by the introduction of lockdowns. In the middle and long run, the current crisis will likely translate into acontinued slowdown in FDI flows. On the other hand, as we may see from the early evidence analyzed in the chapter, the impacts on the international economic activity vary across locations at different levels of economic development, but also between different industries and business models. Research implications: From a theoretical perspective, we must note that in the short run the existing theoretical concepts can be helpful in explaining the present phenomena. However, in the long-term perspective a number of fundamental assumptions may require several revisions outlined in the chapter. Originality and value: The chapter includes an analysis of recent macro- and micro-level data on the effects of the pandemic on international business, along with forecasts for the post-pandemic period. Apart from the practical dimension of the analyzed primary and secondary data, the chapter also offers a number of theoretical implications.

A New Macroeconomic Architecture for the Stock Market

2014 ◽  
pp. 1521-1538
Author(s):  
Masudul Alam Choudhury
Keyword(s):  
Stock Market ◽  
Growth And Development ◽  
Stock Exchange ◽  
General System ◽  
Real Economy ◽  
The Real ◽  
Financial Architecture ◽  
Macroeconomic Analysis ◽  
State Of The Economy ◽  
Emergent Structure

The old idea of segmented macroeconomics of the financial sector competing with the real economy is replaced by a new model, which manifests strong interaction, integration and co-evolution by circular causation relations between the monetary sector and the real economy with the bridging function of finance and financial instruments. The Money, Finance, Spending and Real Economy (MFSRE) model emerges. This model formalizes the new architecture for the macroeconomy, and its relationship to the stock market. In this model relating to a reconstructed state of the economy and the emergent structure of the financial architecture, money and spending are treated as complementary elements of growth and development. The overarching structure in the end is the MFSRE with its extensively complementary inter-variables relationship in a general system and cybernetic form of interrelationships. The economic organization of the MFSRE causes price stabilization and economic growth and development. These are signified in the social wellbeing criterion of the good economy. The stock market, exemplified by the empirical case study of Bangladesh's state of the economy and the Dhaka Stock Exchange, bring out the true example of the macroeconomic analysis. The new financial architecture with its stabilization, sustainability and growth and wellbeing as basic-needs regime of development is contrasted with old macroeconomic belief and policies based on outmoded macroeconomic beliefs and futures.

A New Macroeconomic Architecture for the Stock Market A General-System and Cybernetic Approach

2013 ◽  
Vol 4 (2) ◽  
pp. 1-17 ◽  
Author(s):  
Masudul Alam Choudhury
Keyword(s):  
Stock Market ◽  
Growth And Development ◽  
Stock Exchange ◽  
General System ◽  
Real Economy ◽  
The Real ◽  
Financial Architecture ◽  
Macroeconomic Analysis ◽  
State Of The Economy ◽  
Emergent Structure

The old idea of segmented macroeconomics of the financial sector competing with the real economy is replaced by a new model, which manifests strong interaction, integration and co-evolution by circular causation relations between the monetary sector and the real economy with the bridging function of finance and financial instruments. The Money, Finance, Spending and Real Economy (MFSRE) model emerges. This model formalizes the new architecture for the macroeconomy, and its relationship to the stock market. In this model relating to a reconstructed state of the economy and the emergent structure of the financial architecture, money and spending are treated as complementary elements of growth and development. The overarching structure in the end is the MFSRE with its extensively complementary inter-variables relationship in a general system and cybernetic form of interrelationships. The economic organization of the MFSRE causes price stabilization and economic growth and development. These are signified in the social wellbeing criterion of the good economy. The stock market, exemplified by the empirical case study of Bangladesh’s state of the economy and the Dhaka Stock Exchange, bring out the true example of the macroeconomic analysis. The new financial architecture with its stabilization, sustainability and growth and wellbeing as basic-needs regime of development is contrasted with old macroeconomic belief and policies based on outmoded macroeconomic beliefs and futures.

scholarly journals Taking the Pulse of the Real Economy Using Financial Statement Analysis: Implications for Macro Forecasting and Stock Valuation

2013 ◽  
Vol 89 (2) ◽  
pp. 669-694 ◽  
Author(s):  
Yaniv Konchitchki ◽  
Panos N. Patatoukas
Keyword(s):  
Stock Market ◽  
Economic Activity ◽  
Financial Statement ◽  
Gdp Growth ◽  
Real Economy ◽  
Market Returns ◽  
Financial Statement Analysis ◽  
Stock Market Returns ◽  
Real Gdp ◽  
Predictive Content

ABSTRACT In this study, we hypothesize and find that financial statement analysis of firm profitability drivers applied at the aggregate level yields timely insights that are relevant for forecasting real economic activity. We first show that focusing on the 100 largest firms offers a cost-effective way to extract information embedded in accounting profitability data of the entire stock market portfolio. We then show that accounting profitability data aggregated across the 100 largest firms have predictive content for subsequent real Gross Domestic Product (GDP) growth. We also show that stock market returns have predictive content for future real GDP growth, while their predictive power varies with the length of the measurement window with annual stock market returns being the most powerful. Importantly, we find that the predictive content of our indices of aggregate accounting profitability drivers is incremental to that of annual stock market returns. An in-depth investigation of consensus survey forecasts shows that professional macro forecasters revise their expectations of real economic activity in the direction of the predictive content of aggregate accounting profitability drivers and stock market returns. Although macro forecasters are fully attuned to stock market return data, their forecasts of real GDP growth can be improved in a statistically and economically significant way using our indices of aggregate accounting profitability drivers. Our findings suggest that professional macro forecasters and stock market investors do not fully impound the predictive content of aggregate accounting profitability drivers when forecasting real economic activity. In additional analysis, we examine the association between stock market returns and the portion of subsequent real GDP growth that is predictable based on our indices of aggregate accounting profitability drivers but that is not anticipated by stock market investors. We find that this portion is positively related to stock market returns, suggesting that the macro predictive content of aggregate accounting profitability drivers is relevant for stock valuation. Overall, our study brings financial statement analysis to the forefront as an incrementally useful tool for gauging the prospects of the real economy that should be of interest to academics and practitioners. JEL Classification: E01; E32; E60; M41. Data Availability: Data are available from public sources indicated in the text.

scholarly journals Deciphering the Liquidity and Credit Crunch 2007–2008

2009 ◽  
Vol 23 (1) ◽  
pp. 77-100 ◽  
Author(s):  
Markus K Brunnermeier
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Financial Markets ◽  
Great Depression ◽  
Financial Market ◽  
Mortgage Market ◽  
Credit Crunch ◽  
Real Economy ◽  
The Real ◽  
The Great Depression

The financial market turmoil in 2007 and 2008 has led to the most severe financial crisis since the Great Depression and threatens to have large repercussions on the real economy. The bursting of the housing bubble forced banks to write down several hundred billion dollars in bad loans caused by mortgage delinquencies. At the same time, the stock market capitalization of the major banks declined by more than twice as much. While the overall mortgage losses are large on an absolute scale, they are still relatively modest compared to the $8 trillion of U.S. stock market wealth lost between October 2007, when the stock market reached an all-time high, and October 2008. This paper attempts to explain the economic mechanisms that caused losses in the mortgage market to amplify into such large dislocations and turmoil in the financial markets, and describes common economic threads that explain the plethora of market declines, liquidity dry-ups, defaults, and bailouts that occurred after the crisis broke in summer 2007.

Sign in / Sign up

Export Citation Format

Share Document