The influence of global financial crisis on Jordanian equity market: VECM approach

• Main Authors: Bekhet H.A., Matar A.
• Other Authors: 37100908800
• Format: Article
• Published: Inderscience Publishers 2023
• Subjects: Equity market; Global financial crisis; Granger causality; Jordan; Stock price index; VECM; Vector error correction model
• Institution: Universiti Tenaga Nasional

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. Copyright � 2013 Inderscience Enterprises Ltd.