Prague Economic Papers 2011, 20(1):3-22 | DOI: 10.18267/j.pep.384

Modelling Stock Exchange Index Returns in Different GDP Growth Regimes

Alenka Kavkler1, Mejra Festić2
1 EPF - Faculty of Economics and Business, University of Maribor, Slovenia, (alenka.kavkler@uni-mb.si); and EIPF - The Economic Institute, Ljubljana.
2 EPF - Faculty of Economics and Business, University of Maribor, Slovenia; and EIPF - The Economic Institute, Ljubljana, Slovenia (mejra.festic@uni-mb.si; mejra.festic@eipf.si).

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.

Klíčová slova: GDP growth regimes, smooth transition regression, stock returns
JEL classification: C25, F36, F47, G12, G15

Zveřejněno: 1. leden 2011  Zobrazit citaci

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Kavkler, A., & Festić, M. (2011). Modelling Stock Exchange Index Returns in Different GDP Growth Regimes. Prague Economic Papers, 20(1), 3-22. doi: 10.18267/j.pep.384
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