Modelling Stock Exchange Index Returns in Different GDP Growth Regimes

Alenka Kavkler and Mejra Festić

Prague Economic Papers, 2011, vol. 2011, issue 1, 3-22

Abstract: During different GDP growth regimes, the dynamics of global financial markets impacts the Slovenian stock exchange with varying intensity. We propose a smooth transition regression model to explain Slovene stock exchange index returns employing financial and macroeconomic variables. According to our model, the reaction of the stock market to several of the explanatory variables depends on the magnitude of GDP growth. The weaker relationship between Slovene stock exchange index returns and S&P 500 returns in the period of lower or negative GDP growth could be explained by less developed financial market in Slovenia and therefore not closely linked interchange of securities.

Keywords: GDP growth regimes; smooth transition regression; stock returns (search for similar items in EconPapers)
JEL-codes: C25 F36 F47 G12 G15 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.18267/j.pep.384

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