The impact of crises on the relationship between stock market development and macroeconomic variables: Evidence from Hong Kong and Singapore
The impact of crises on the relationship between stock market development and macroeconomic variables: Evidence from Hong Kong and Singapore

Summary/Abstract: Dynamic linkages between macroeconomic factors and stock marketdevelopments in the economies of Hong Kong and Singapore arethe subject of investigation in this paper. These city-states belong tothe world’s most globalised economies and are two of the world’sfour largest financial centres. In the crisis years, both these countriesexperienced a decline in GDP, faced the threat of deflation, and theirforeign trade turnover decreased. The crisis also affected the financialsector. This paper aims to ascertain the impact of structural economicchanges, namely the financial crisis, on the prosperity of these advancedeconomies. The basic characteristics of determinants of economicdevelopment and the analysis of the mutual relationships ofselected macroeconomic indicators with the financial markets serveto meet the aim of this paper. The macroeconomic variables usedin most research are GDP, the interest rate, the inflation rate, moneysupply and the unemployment rate. To test the dependence of theseindicators, a regression model was constructed, and the period from2005 to 2016 was chosen for observation. From the linear regressionequation, it is obvious that the unemployment rate, the exchange rateand the interest rate have a prevailing negative effect on equity returns,in contrast to money supply, which has a prevailing positive effect. TheChow test confirms that the global financial crisis at the end of 2008had a negative impact on the predictive ability of the chosen linearregression analysis in the long-term time horizon in both countries.

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