Home⇛Psychology and Education: A Multidisciplinary Journal⇛vol. 27 no. 9 (2024)

Stock Market Trends and Economic Growth: Unraveling the Nexus in the Philippines

Marieta Tabasondra

Discipline: Economics

 

Abstract:

Investors are using the stock market to invest their money for capital appreciation. Recent advancements in the information system have made stock market investments accessible to various investors. This study aims to examine the relationship between the stock price index and Gross Domestic Product (GDP) using empirical data, focusing on the short-term or long-term relationship, as well as the impact of available information on stock prices. The research is supported by theories such as the efficient market hypothesis, stock valuation theory, the balance sheet model, and Tobin's q theory. Secondary data from 1995-2022 were utilized, with quarterly data obtained from the Philippines Statistics Authority (PSA) and the Macrotrend.Net. Diagnostic tests were conducted to ensure there were no violations of normality, homoscedasticity, and serial correlation. Econometric tests were utilized to test the historical data, including the Augmented Dickey-Fuller (ADF) test for stationarity, the lag length test, the Johansen cointegration test, and the Granger causality test. The results indicate a positive long-term relationship between the stock price index and GDP. The Vector Error Correction Model (VECM) supports this finding, revealing that a 1.02% increase in the stock price index corresponds to a GDP increase. These findings support the balance sheet theory, indicating that well-performing companies attract investment, leading to higher investment income and subsequent positive economic impacts. Additionally, the availability of information plays a role in stock prices, emphasizing the importance of information security for companies. Future research could explore the effects of specific stock classes on GDP, conduct comparative studies among different countries, or examine other economic indicators' influence on stock prices and the economy. Moreover, investigating the impact of information system advancements on stock prices and the overall economy presents an interesting avenue for further exploration.



References:

  1. AbdulJalil, A., & Rao, N. H. (2019). Time Series Analysis (Stationarity, Cointegration, and Causality). Environmental Kuznets Curve (EKC), 85–99. https://doi.org/10.1016/b978-0-12-816797-7.00008-4
  2. Annual to quarterly frequency - EViews.com. (n.d.). Annual to Quarterly Frequency - EViews.com. https://forums.eviews.com/viewtopic.php?t=21124
  3. Bai M. (2022). An Empirical Study on the Relationship between Stock Price Information and Enterprise Innovation Management Based on Information Learning Mechanism. Computational intelligence and neuroscience, 2022, 9425405. https://doi.org/10.1155/2022/9425405
  4. Bank, E. C. (2023, May 25). European Central Bank. European Central Bank. https://www.ecb.europa.eu/home/html/index.en.html
  5. Barra, M. S. C. I. (2010). Is there a link between GDP growth and equity returns?. Research Bulletin.
  6. Bodie, Z., Kane, A., & Marcus, A. J. (2011). Investments (12th ed., pp. 211-219). McGraw-Hill Interamericana de España S.L.
  7. CFI Team. (2023.). Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/valuation/q-ratio/
  8. Does the stock market reflect the economy? - Economics Observatory. (n.d.). Economics Observatory. https://www.economicsobservatory.com/does-the-stock-market-reflect-the-economy
  9. Fama, E. F. (1970, May). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25(2), 383. https://doi.org/10.2307/2325486
  10. https://www.worldbank.org/en/country/philippines/overview
  11. Investopedia. https://www.investopedia.com/terms/s/stockmarket.asp. What Is the Stock Market, What Does It Do, and How Does It Work? (2023, April 22).
  12. Macrotrends | The Long Term Perspective on Markets. (n.d.). Macrotrends | the Long Term Perspective on Markets. https://www.macrotrends.net
  13. Nguyen, T. (2022, February 19). How to choose the best stock valuation method. i-SCOOP. https://www.i-scoop.eu
  14. Omar, A. B., Ali, A., Mouneer, S., Kouser, R., & Al-Faryan, M. A. S. (2022). Is stock market development sensitive to macroeconomic indicators? A fresh evidence using ARDL bounds testing approach. PloS one, 17(10), e0275708. https://doi.org/10.1371/journal.pone.0275708
  15. Pradhan, R. P., Arvin, M. B., Samadhan, B., & Taneja, S. (2013). The impact of stock market development on inflation and economic growth of 16 Asian countries: A panel var approach. Applied Econometrics and International Development, 13(1), 203-220.
  16. Quandt, A. K. (2020). Stock Market Correlations to Economic Indicators.
  17. Sarel, M. (1996). Growth in East Asia: What We Can and What We Cannot Infer  SSRN Electronic Journal. https://doi.org/10.2139/ssrn.883245
  18. Spanos, G., & Angelis, L. (2016, May). The impact of information security events to the stock market: A systematic literature review. Computers & Security, 58, 216–229. https://doi.org/10.1016/j.cose.2015.12.006
  19. Stocks | Investor.gov. (n.d.). Stocks | Investor.gov. https://www.investor.gov/introduction-investing/investing-basics/investment-products/stocks
  20. Wong, H. T. (2017). Real exchange rate returns and real stock price returns. International Review of Economics & Finance, 49, 340-352.

Tools


Copyright © 2026  KITE Digital Educational Solutions |  Exclusively distributed by CE-Logic