Open AccessA cross-country and country-specific modelling of stock market performance, bank development and global equity index in emerging market economies: A case of BRICS countries
Author(s) -
Ebere Ume Kalu,
Augustine C. Arize,
Okoro E.U. Okoro,
Florence Ifeoma Onaga,
Felix Chukwubuzo Alio
Publication year - 2020
Publication title -
plos one
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.99
H-Index - 332
ISSN - 1932-6203
DOI - 10.1371/journal.pone.0240482
Subject(s) - cointegration , stock market , economics , equity (law) , stock market index , error correction model , emerging markets , stock (firearms) , monetary economics , financial economics , econometrics , macroeconomics , horse , political science , law , biology , engineering , mechanical engineering , paleontology
This study investigated in cross-country and panel form the interactions of bank development, stock market development and global equity index, focusing on the BRICS countries covering the period 1990 to 2018. We found a bidirectional causation between bank development (CPSGDP) and stock market performance as proxied by the depth of the markets (MCAPGDP) in the BRICS countries. Cointegration was also found using the panel cointegration framework and the bounds test for the ARDL estimators. This largely proves that a long-run relationship of both direct and reverse nature exists between bank development and stock market performance. For the bank development and market performance models respectively, all the error-correction terms were found to be negatively significant, indicating that they both share dynamic profile and adjust appreciably to deviations from equilibrium between the short run and the long run. The global equity index showed that stock market development interacts more with the global financial environment than bank development in the BRICS countries. Our findings support the complementarity and coevolution hypothesis in the stock market and bank development nexus.