Determinants of Stock Market Development in Romania
Determinants of Stock Market Development in Romania

Summary/Abstract: This study aims to evaluate the impacts of some central explanatory variables namely Foreign Direct Investment (FDI), infrastructure facility, saving, inflation, income and energy use on Romanian’s stock market development measured by market capitalization. For empirical examination, this study used annual time series data over the period of 1990 to 2013. The study employs various diagnostic tests including normality test, Pearson correlation test, Park test and DW- test, which shows that there is no problem of skewness and kurtosis, no problem of heteroscedasticity and no problem of autocorrelation in the model of market capitalization used for Romania. The Johanson co- integration results indicates that there exists three cointegrating relationship among the variables. Further, least squares estimate indicates incoming FDI, infrastructure, saving, energy usage and income are important determinants of Romanian’s stock market in selected macroeconomic variables used in the study. The empirical findings suggests that management authorities of Romania needs to formulate prudent macroeconomic stabilization policy in order to encourage incoming FDI, facilitate physical infrastructure, encourage saving, maintain sustainable energy use. Thus, all these measures will further develop largely Romanian’s stock market.

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