Significant Associations

The relationship between Stock market index and economic growth has always received much attention in the discipline of Finance Over a period of time, it has been observed that the economic growth indicators and the stock market index of a nation move in a similar direction Moreover, the compounded annual growth rate of the US GDP closely aligns with the same of Standard and Poors 500 Index
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You dont own stocks. Stocks own you. TONY BALIS

Persistent Argument
The argument is whether Stock market development causes economic growth or it is a consequence of augmented economic activities To test the association, Granger Causality test has been run on the following variables Standard and Poors (S & Ps) 500 Index Index for Industrial Production in US Quarterly data has been used for the period 1950-2010
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Never invest in any idea you can't illustrate with a crayon. PETER LYNCH

Economic impacts of a Stock Market

Wealth Effect: When stock markets rise, the investors become wealthy and are willing to spend more Effect on Pensions: If share prices fall too much, pension funds can struggle to meet their promises Investor Confidence: Bad headlines of falling share prices are another factor which discourage investors from spending Firms Investment: Plummeting stock prices makes it much more difficult for firms to raise finance on the stock market
When buying shares, ask yourself, would you buy the whole company? RENE RIVKIN

Conclusion
The empirical evidence strongly supports that

greater stock market development and liquidity enhances or at least precedes economic growth More liquid stock markets and enhanced risk sharing also aids in the undertaking of longer tenure investments with better returns Stock markets should become much more robust and effectual so that the cost of capital or equity risk premium could be brought down

You can never predict when that unknown torpedo will come out of the dark and smash the price of a stock. RALPH SEGER

Supporting Researches
Levine and Zervos presented a paper at the World Bank called Capital Control Liberalization and Stock Market development in 1995 The results of the paper clearly exhibited that stock market liquidity rose significantly in twelve out of the fourteen nations that liberalized controls on international capital flows For instance, Chile liberalized constraints on the repatriation of dividends by foreign investors in January, 1988
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We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. WARREN BUFFETT

Recommendations
Regulatory, accounting and legal systems

should be designed to ease the process with which stockholders trade the securities The proposed accounting practice of IFRS should be implemented as it will make easier for Indian companies to raise cheaper funds overseas Full capital account convertibility should be permitted to enhance the stock market liquidity

I hate weekends because there is no stock market. RENE RIVKIN

Research Paper used for Reference

Easiest way to earn money in stock Market. Ask a layman to trade, Sell whatever he buys, Buy whatever he sells. HRISHIKESH SENGUPTA

Other References for the Project

(n.d.). Retrieved from http://astonjournals.com/manuscripts/Vol2010/BEJ-1_Vol2010.pdf ECONOMICS HELP. (n.d.). Retrieved from http://www.economicshelp.org/blog/stock-market/how-does-thestock-market-effect-the-economy/ Google. (n.d.). Retrieved from www.google.com/publicdata IMF. (n.d.). Retrieved from http://www.imf.org/external/pubs/ft/fandd/1996/03/pdf/levine.p df Samy BEN NACEUR, S. G. (n.d.). Does Stock Market Liberalization Spur Economic and Financial Development in the MENA Region? Retrieved from https://netfiles.uiuc.edu/skarimi2/www/MEEA/Paper%20by%20Be n%20Naceur,%20Ghazouani,%20and%20Omran.pdf Stock Markets: A spur to the Economic Growth. (n.d.). Retrieved from http://actrav.itcilo.org/actravenglish/telearn/global/ilo/equity/fdstock.htm Yahoo Finance. (n.d.). Retrieved from http://finance.yahoo.com/

The economy depends about as much on economists as the weather does on weather forecasters. JEAN-PAUL KAUFFMANN

Goodness is the only investment that never fails. HENRY DAVID THOREAU

EXHIBIT-1

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First Variable: S & P 500 Index

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Second Variable: IIP Index (A proxy for economic growth)

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Granger Causality Results with different lag values

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Granger Causality Results with different lag values (*Continued)

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Regression Output

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EXHIBIT-7

The table also indicates that easing international capital flow constraints may increase liquidity, but it may also increase volatility But volatility should not be of much concern as it does not put any reckonable impact on the long-term growth Thus, if policymakers have the perseverance to withstand some short-run volatility, liberalization offers expanded prospects for long-run economic growth
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