Stock Market Performance and Gross Domestic Product Innovations

This paper by Marwan Alzoubi examines the relationship between real GDP and stock prices on the Amman Stock Exchange from 1993 to 2022 using the autoregressive distributed lag (ARDL) bounds test. The study finds that GDP growth leads stock prices, not the reverse, with a 1% increase in real GDP associated with nearly a 4% increase in stock prices in the long run. Interest rates and inflation have significant negative effects on stock prices in both the short and long term; interest rates have the strongest impact, with a 1% increase reducing stock prices by more than 5%. Domestic credit is not significant in the long run. The findings suggest that financial stability should be considered alongside inflation targeting by the Central Bank of Jordan, as interest rate volatility can destabilize markets. The error correction term confirms a strong long-term relationship among the variables.