THE IMPACT OF GLOBAL AND LOCAL MACROECONOMIC INDICATORS ON THE SECTORAL INDICES OF THE AMMAN STOCK EXCHANGE USING EQUILIBRIUM MODELS

Abstract

The stock market is an important pillar of countries’ economies that plays an essential role in the growth of industry and commerce that ultimately influence the economy of each country. In the last decade, Jordan has been influenced by different political events and regional conflicts that have affected its economy and led to an imbalance in macroeconomic indicators. These events included the global financial crisis, the Arab Spring crisis and wars in neighbouring countries, such as Iraq and Syria. In addition, the main sector indices of the Amman Stock Exchange (ASE) were significantly affected during the last decade. Despite this situation, there is a lack of research examining the state of the ASE during recent decade, especially at the sector level. Therefore, this study sought to examine the cointegration and long- and short-run relationships between different local and global macroeconomic indicators and the main sectoral stock indices in the ASE for the period 2007 to 2016, using a time-series model (an autoregressive distributed lag approach). Moreover, this study employed a vector error correction model to examine the causality relationship in the short and long run. The results of this study indicated that there is a cointegration relationship between the macroeconomic indicators and the main sector indices. In detail, this study found that interest rates have a positive and statistically significant effect on the financial sector in the long run.