Stock Market Development and Economic Performance: The Case of Mexico

Ramon A. Castillo-Ponce (), Maria De Lourdes Rodriguez-Espinosa and Edgar David Gaytan-Alfaro
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Ramon A. Castillo-Ponce: California State University, Los Angeles and Universidad Autónoma de Baja California
Maria De Lourdes Rodriguez-Espinosa: Universidad Tecnológica de la Mixteca
Edgar David Gaytan-Alfaro: Universidad Autónoma de Zacatecas

Revista de Analisis Economico – Economic Analysis Review, 2015, vol. 30, issue 1, 41-56

Abstract: We evaluate the association between stock market development and the aggregate economy for the long-run and the short-run. We perform cointegration and common cycle tests considering various stock market indicators, real GDP and industrial production for the Mexican economy. While controlling for structural breaks in the series, we identify the existence of common trends but not common cycles. Specifically, stock market activity and real variables exhibit a positive and significant relationship in the long-run; however, they appear to have different responses to transitory shocks. These results confirm that stock market development is conducive to economic growth.

Keywords: Economic Growth; Financial Markets; Efficient Market Hypothesis; Cointegration; Common Cycles (search for similar items in EconPapers)
JEL-codes: C32 E20 G20 (search for similar items in EconPapers)
Date: 2015
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