Authors: Hussain Ali Bekhet; Ali Matar
Addresses: Graduate Business School, College of Graduate Studies, Universiti Tenaga Nasional (UNITEN), 43000 Kajang-Selangor, Malaysia ' Graduate Business School, College of Graduate Studies, Universiti Tenaga Nasional (UNITEN), 43000 Kajang-Selangor, Malaysia
Abstract: The current paper attempts to analyse the causality and co-integration relationship between the global financial crisis and the general stock price index (SPI) in the Jordanian equity market for the 1978-2011 period. A vector error correction model (VECM) is utilised to test the causal relationship between SPI and its determinants [gross domestic product (GDP), money supply (M2), exchange rate (EX) and consumer price index (CPI)]. The results identify a co-integration between SPI and Jordanian macroeconomic variables indicating a long-run equilibrium relationship among them. The error-correction term coefficient has a significant negative sign pointed to the adjustment back from short-run disequilibrium to the long-run equilibrium. The Granger causality test suggests a bidirectional causal relationship between SPI and M2 in the short and long runs. In addition, the results reveal that the global financial crisis has a positive significant impact on the SPI.
Keywords: VECM; vector error correction model; stock price index; SPI; Granger causality; global financial crisis; equity markets; Jordan; gross domestic product; GDP; money supply; exchange rate; consumer price index.
International Journal of Monetary Economics and Finance, 2013 Vol.6 No.4, pp.285 - 301
Received: 20 Jul 2013
Accepted: 26 Sep 2013
Published online: 21 Mar 2014 *