CAN THE NARROW AND BROAD MONEY SUPPLY GAP BE USED AS AN INVESTMENT INDICATOR FOR THE STOCK MARKET?

Yuan-Ming Lee () and Kuan Min Wang
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Yuan-Ming Lee: Department of Finance, Southern Taiwan University of Science and Technology, No. 1, Nantai St, Yung-Kang City, Tainan, Taiwan

The Singapore Economic Review (SER), 2024, vol. 69, issue 02, 727-749

Abstract: This study uses the golden cross and death cross formed by the gap between the narrow and broad money growth rates as threshold variables to estimate the threshold model and test the causal relationship between money supply and stock prices in eight emerging market economies (EMEs) in Asia; the sample periods are from January 2000 to December 2020. The results show a high-positive, bi-directional relationship between the money supply and stock prices in the golden cross regime. On the other hand, the money supply has a negative, one-way causality on stock prices in the death cross regime. We also conducted a robustness test during the COVID-19 spread, and the result shows that the mechanism still applies, but the effectiveness is reduced. Thus, our contribution is discovering the golden cross and death cross information formed by narrow and broad money, informing stock market investment.

Keywords: Threshold vector autoregression; stock price; money supply; money supply gap; COVID-19 (search for similar items in EconPapers)
JEL-codes: C32 C51 E44 G15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0217590823410011

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