MACROECONOMIC DETERMINANTS OF STOCK MARKET DEVELOPMENT: EVIDENCE FROM THE MACEDONIAN STOCK EXCHANGE

The stock market, as an important component of the capital market, plays a significant role in a capital formation process due to the tremendous opportunities that ensue from its activities. The establishment of a successful stock market in a developing economy can be one of die major sources of its economic growth if it provides development of the finance sector by channeling domestic savings and attracting foreign investments. In order to stimulate capital market development, it is necessary to analyze the determinants that influence its progress. Hence, the main objective of this study is to examine the important macroeconomic determinants that underpin the stock market growth. The focus has been put on the investigation of one dependent variable, market capitalization to GDP ratio, as a parameter resembling the size of the capital market, and how it depends on the economic growth, gross investments to GDP ratio, and trade openness. The empirical study is based on a time-series data analysis originating from valid secondary data sources, based on the utilization of the Johansen Test of Cointegration and the development of a Vector Error Correction model to estimate the relationship, the impact, the magnitude, and the significance of the determinants that support the development of the capital market in North Macedonia during the period from 2008:Q1 to 2018:Q4.The examination conducted in this paper shows the existence of a significant relationship between the observed macroeconomic factors and the stock market development. The findings indicate that economic growth has a negative impact, whereas trade openness has a significant, yet a positive impact on the Macedonian stock market development. The gross investments to GDP ratio exhibits a positive, but still insignificant impact on the stock market development.