The New Information Age & the Stock Market Growth Puzzle
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Date
2025-02-28
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Abstract
We investigate the nexus between developments in financial intermediation
with the growth in capital market activity and implications for the retail investors in
India, over the post-liberalization period ranging 1993-2004. The estimations using
unrestricted VAR based on error correction models, both in the short term and the
long term models illustrate the short run relationship the time-series properties of
stock market development and the new information age nexus. The coherent picture
which emerges from Granger-causality test based on vector error correction model
(VECM) further reveals that in the long run, stock market development Grangercauses financial infrastructural growth. Our findings suggest that the evolution of financial sector and in particular the stock market tends to, or is more likely to
stimulate and promote economic growth when monetary authorities adopt liberalized
investment and openness policies, improve the size of the market and the de-regulate
the stock market intone with the objectives of macroeconomic stability. This study
provides robust empirical evidence in favor of finance-led growth hypothesis for the
Indian economy.