Factors on Stock Market Development in SAARC Region

Factors on business foodstuff increment in SAARC RegionThe Impact of institutional and Macro frugal Factors on Stock Market Development in SAARC regionFayaz Ahmed SoomroProblem command at that place argon m some(prenominal) explorees concerned about the relationship amid the Macroeconomic variables and the fund certificate food market place procedures1. Researchers brook examine many una standardised factors of Macroeconomic variables like gross domestic product, nest egg, Credit facilities, Shares flipd, interest rates, remittances from abroad, trade deficit, consumer banking, business of industrial goods, liquid state and more macroeconomic factors having meaning(a) move and are the major(ip) contributors in argument market schooling2. Researches similarly claim that thither is atomic number 53 behavior relationship among source market suppuration and macroeconomic variables3. Researchers have likewise concentrated on the sham of tonus of institutions on the knowledge of equity market in developing countries specially4. However there is has been non much interested directed towards institutional quality having impact on parenthood market phylogeny in SAARC region. This question is focus on testing the possibility and adding experiential evidence from in ground of impact of quality of institutions on the development of equity market. This explore office help the respective countries of SAARC in understanding cleanse the factors contributing in the development of banal market in the SAARC territory and May helps the form _or_ system of government makers to devise better and effective policies for the whole region.ObjectiveTo determine the impact of the quality of institutions with macroeconomic factors are having on the development of investment trust markets in SAARC region.Research QuestionWhat is the impact of quality of institutions with macroeconomic factors on the performance of the stock markets?Literature Rev iewDevelopment of the Stock markets and the growth of the economic systemThere has been nominate that stock market development and economic successfulness are highly correlated Levine and Zervos (1996). The study adopted positivist overture and correlational statisticsal in nature and based on 41 countries in the period 1976- 1993, the numeric method was adopted. It was deduced based on the hypothesis pickings sample distribution population of 41 countries in the period 1976- 1993 that there make up a high correlation among stock market and growth of thriftiness.unidirectional effect of Macroeconomic VariablesMacroeconomic factors affects the stock prices in the unidirectional way that is stock prices does not affects the Macroeconomic variables to change Hussain and Mehmood (2001). The show up adopted is denary in nature and move in the domain of positivist seek paradigm. The deduction was based on sample population of Pakistan by considering the period of 1959-60 to 1 998-99.Stock Market and sparing Prosperity Evidence from IndiaEconomic successfulness is highly related with the stock market performance in the economy Deb and Mukherjee (2008). He analysed by the quantitative research methods and hence inwardly positivism research paradigm that in India economic prosperity leads to the better stock market performances. He deduced that there is a relationship between economic prosperity and the stock market development in India by taking sample population of India from the period of ten socio-economic classs. It was also base that there exists a bidirectional causal relation among the said variables.Development in the Stock Market of PakistanLiquidity and the prices of the stocks do not have any relation in any direction Ali et al. (2010). This research falls into the Post positiveness research paradigm because it is refuting the generalization do in the literary productions that uppercase supply and stocks prices have no relation at all in any direction. This was tried by using Granger-causality test, increase Dickey Fuller, Unit Root Test and the test of co-integration (Johansen) have been applied. He also found that there is no causality effect among the liquidity and stock prices, industrial production , exchange proportion, rising prices, balance of trade and prices of the shares in Pakistan.Foreign Direct Investment is highly related to stock market development Raza et al. (2012) this research adopted quantitative and hence followed the positivism research paradigm that is, it tested the supposition in consistent with the literature. The factors like savings, rising prices and money exchange rates were also considered and were found significant. Savings were in line with stock market however inflation and money exchange rate were found to have a negative impact.The research found that 70 percent of the increase in development of stock market is caused by the one percent change in FDI inflow. This is a huge impact so the government of Pakistan should be looking precedent to protect the foreign investors and facilitate them as much as possible. There should be framework under which the foreign investors can take the soft their part and keep on investing in prepare to promote the stock market activities in the region.Stock Market development in BangladeshThe stock market of the Bangladesh is not mature yet and its not up to the standards of international markets, however this research identified many factors touch the stock market development in Bangladesh Rrahman and Rahaman (2011). The research adopted quantitative and followed Positivist approach. data was collected from the period 2001 to 2008 and was collected from various time-tested sources of Bangladesh. Many different statistical techniques were used like descriptive analyses, correlation analyses were applied. All the variables were found to have significant impact. It was also suggested that Bangladesh stock market is h ighly volatile and there has much to improve in order to make it up to international standards.Stock Markets and the Institutional QualityInsitutional quality plays most-valuable role in the development of various sectors of the economy. Its implication has been tested and proved significant in the non banking financial sector in the bosom East and African regions Creane et al. (2004). The proxies that were used are Banking Industry, Money Supply, gradely monetary and fiscal policies, industrial regulations, financial corruption and the quality of institutions. Recommendation made in this report is about to increase the quality of institutions.Yartey (2008) Institutional factors including the semi policy-making stablity, quality in bureaucracy, stability of democracy, corruptions, general regulations and laws with separate macro economic factors were found to have a significant effect on the stock market activities because it usually increases financial facility to the general public and they angle to invest in the equity market. The info was collected from the period 1990 until 2004 that is make out 14 years of 42 emerging economies. The data was analyzed through regress analysis. However risk in the political stability was suggested a major contributing in the stock exchange market enhancement.In other Burhop et al. (2011) tried to find the regulatory body as the chief(prenominal) components of the stock exchange market. In his studies he considered London equity market and the stock market of berlin and quantified as in the form of IPO- initial world Offerings. However he could not conclude whether regulatory body plays an important role in the stock market activities but he found that long term profits and survival in the competition as the important factor in the successful market.Research MethodologyEpistemologyThis research tries to identify the Institutional factors and other macroeconomic factors that lead to the development of stock mark et, this knowledge already exist and justified in the region of nerve East in the world-wide Monetary Funds on the job(p) paper of Billmeier and Massa (2007).Nature of KnowledgeThis research tries to test already brisk knowledge in the literature Billmeier and Massa (2007) which was specifically applied in the regions of center field East and Central Asia. The theory has been tested quantitatively that exist in literature and adopted Positivism approach. This research adds the empirical proof from the SAARC region.Methodology- PositivismThis research is also quantitative in nature and follows the positivism approach because its in consistent with the existing literature and follows the systematic scientific approach to find its applicability in the SAARC region. The gap in the empirical evidence was identified and in order to fill the gap similar suggests were developed but in different context of its application lustinessThe method, approach, statistical technique and the me asurement of the variables are in consistent with the International Monetary Funds functional paper. That means theory already exist but it has been applied in the different context that is in SAARC region. Institutional quality has been measured as a index of Economic freedom by heritage Index of Economic Freedom and other macroeconomic variables has been measured and reported by the World Bank and the data has been collected from their published reports. The detailed measurement is as followsMarket great(p)isation This is has been measured as fit honor of the shares outstanding in the stock markets which is the total sum of shares prices multiplied by the no of outstanding securities. For this research it has been taken as the percentage of GDP.IQ Institutional Quality Institutions are the formal governing bodies in any country which look later on the overall governing structure of the economy. These institutions guide the economy about political activities, social activitie s and the economic activities. Quality of institutions is enhanced with efficient and effective working of institutions. Quality is measured by Heritage Foundation as stigmatise from 0 to 100, the lowest cherish being the poorest form of quality and higher(prenominal) the score the higher the quality.INC Income It is represented as the total value of production within the country and has been measured at constant base of year 2000 US $ in Billions.INV Investment It is represented by the addition in the aggregate value of fixed assets with any inventories. This has been taken in this research as capital formation percentage of the GDPSVT Stock value traded It is represented by the shares total value in the specific period. This has been also taken as percentage traded over GDPDC interior(prenominal) character reference It is represented by the total value of lending to the customers in the private sectors. This has also been taken as percentage of GDP.ReliabilityThis theory has b een applied in the region of SAARC region from the period 1996 to 2012. It is suggested the this theory depart produce more or less the same results if carried out in the different period of time in the SAARC regionGeneralizabilityThis same theory was applied and proved in the region of Middle East. This research also proved and produced the same results in the SAARC region hence It can be concluded that this theory is applicable to the regions with similar conditions of economy like in Middle East and Central Asia.Synthetic a posteriori propositionThe proposition in this research says that Institutional Quality and macroeconomic factors have significant and positive impact on the stock market development in the SAARC region. This proposition is a synthetic a posteriori and subject to empirical stoppage from the above region.Deduction ReasoningGeneral statements1 Quality of institutions affects importantly on the development of stock market.2 GDP affects significantly on the dev elopment of stock market.3 Domestic credit affects significantly on the development of stock market.4 Stock traded value affects significantly on the development of stock market.5 Gross capital formation affects significantly on the development of stock market.HypothesesHo1 Quality of the institutions affects insignificantly on the development of stock market.Ha1 Quality of the institutions affects significantly on the development of stock market.Ho2 GDP affects significantly on the development of stock market.Ha2 GDP affects insignificantly on the development of stock market.Ho3 Domestic credit affects significantly on the development of stock market.Ha3 Domestic credit affects significantly on the development of stock market.Ho4 Stock traded value affects significantly on the development of stock market.Ha4 Stock traded value affects significantly on the development of stock market.Ho4 Gross capital formation affects significantly on the development of stock market.Ha4 Gross capit al formation affects significantly on the development of stock market.Conclusion1 Institutional quality does impact significantly on the development of stock market2 GDP does impact significantly on the development of stock market3 Domestic credit does impact significantly on the development of stock market4 Stock traded value does impact significantly on the development of stock market5 Gross capital formation does impact significantly on the development of stock marketFalsificationAs this research is in consistent with the existing theory and has been only tested without amendments hence it is not refuting any theory of knowledge but adds empirical evidence in the literature from untested region that is South Asian Association of Regional Cooperation (SAARC) countries.selective information Collection and SourceIn this research secondary data has been used. Data of institutional quality collected from the Index of Economic Freedom of Heritage Foundation. Data of macroeconomic varia bles collected from the World Bank.Target PopulationThe research focuses on the regions of SAARC economies in particular countries Pakistan, Bangladesh, India, Nepal and Srilanka.Sample SizeThe dataset of 5 economies has been considered. The year 1995 to 2010 that is for 15 years of 5 countries of the SAARC region making it a total observations of 75 has been taken as the sample size.Statistical TechniqueThe sample data of dependent variable and independent variables will be analyzed by ordinary least square method of multiple regression analyses technique.Research ModelMCP = + 1 IQ + 2 INC + 3 INV + 4 SVT + 5 DC + eWhereMCPMarket CapitalizationIQ Institutional QualityINC IncomeINV InvestmentSVT Stock value tradedDC Domestic credit11 Deb and Mukherjee (2008) Mustafa and Cagatay (2012)2 Ali et al (2010), Raza et al (2012)3 Hussain and Mehmood (2001)4 Billmeier and Massa (2007), Lombardo and Pagano (2000), Yartey (2008), Burhop et al (2011)