Of recent years, there seem to be a divergence between stock market performance and economic activity. However, if measure on a long-run basis, it should be cointegrated. A representative stock market should reflect the economy as earnings drive value and stock prices of companies. Unless there are other factors at work, in the short-run to blur the distinction. Or the economy is subject to shocks and stock prices overreacted. The volatility in stock prices will be wider than the GDP or economy. Stock prices have a higher frequency compared to real economic sector data.

Which currency? The currency reflects the national economy; the Stock exchange, reflects market estimates of quoted companies performance on global markets.

Paul: In the United States, the stock market is one indicator of the health of the economy. It's not the only economic indicator, but it is one of several factors that affect the overall economy.

The stock market shows how individual companies are performing. The money put into the stock market funds company growth and expansion. The stock market also shows if investors are confident (or not) in the economy. Unfortunately, investors sometimes react to world events and rumors, so the stock market can be very volatile.

The economy can also affect the stock market. Announcements on the state of the economy by the government like the unemployment rate and inflation rate can affect the buying & selling of stocks.

It should also be said that the stock market is not the economy. Many investors use their emotions to decide when to buy or sell stocks.

This is a good article that explains the relationship in the USA:

https://www.thebalance.com/how-do-stocks-and-stock-investing-affect-the-u-s-economy-3306179

Average stock market growth = 10%

Average economic growth rate = 3%

This gap is stable over the years.

For economic growth, see IMF report:

https://www.imf.org/en/Publications/WEO

For stock market return, see:

http://econompicdata.blogspot.com/2015/04/is-there-relationship-between-economy.html

Dariusz, your question needs to be put in perspective and answered in the context of the perspective though, one could go for a general response. I want to assume that what you mean by "situation in the Stock Exchange" is development in Stock Exchange/Market from 1970 to date. With this in mind, it implies you are asking about the size and nature of the relationship/correlation between national economy and Stock Market development within the given period. If we are on the same page, your question therefore translates into a simply research topic.

The answer should be based on empirical evidence not on rule of thumb.

There are several indicators of Stock market development as a sub set of the Financial Market development which in turn forms a major segment of the Financial system development. We have such indicators like stock market capitalization, Stock turnover ratio among others. Also some experts such as Svirydzenka of IMF have developed a composite index of financial market development (of which Stock Market is included). On the other hand, when talk of national economy, we are simply talking of gross domestic product(GDP) and its growth. In view of this, we could simply represent the growth by the annual growth rate.

From this background, your question could be narrowed to 'what is the extent of the difference between GDP growth rate and rate of growth in the Stock market -related performance indicators for the period 1970 to date? This requires empirical approach for an evidence-based answer. On a general note, there are differences as should be expected but in terms of co-movements, some economies have experienced positive correlation- suggesting that on average their stock markets have been developing/growing as their economies are growing while others have different tales to tell.

I wish to stop this far for now.

Thank you.

Dr Anthony Nzeribe Chizue Nwaubani

I share the same impression. It must be related the so-called financialization of capitalism. A problem remains why and how the gap has sustained.

Dear Prof. Prokopowicz,

We have through our research at the RHMHM School and also differentiably Mallick, Hamburger & Mallick (2016, 2017, 2018), Mallick, Raychaudhury , Mallick and others (2019) , developed the Econophysical String theoretic Systems Classification and Systems Integration Theory of Electronic Stock Markets and shown them to be EconoPhysical Sciences classificationwise like growth potentialwise tested electronic stock market systems to be string theoretic AGGNNnetwork fundamental field integrated with the universe by light and wave-particle duality at equilibrium in the learning field (Mallick (1993)), Mallick, Hamburger & Mallick (2018), which is by Higgs-Mallick mechanics vectorially embedded in the network learning field (Mallick et.al.). Hence by a kimit argument group closure in dimensions, even in the absence of full resolution of he forces and particles, mathematical econophysically it is discovered that no economic activity mass (or weight) can escape these network systems. It is a feature of SO(32) heterotic strinf matching field theory in the internetworked cybernetic econophysics field of globalised electronic stock market networks we have discovered. The only problem which needs to be rtesolved in the economic sciences field perse is the resolution of bounded rational activity and holes in the learning field as Prof. Thors Hansson in his Nobel Prize talk particularly hinted at. Mallick (1993) had discussed these holes in spacextime of expectations driven Arrow-Debreu type markets with the endogenous formation of the learning fields with US college level experiments on preference structures and methods of solutions.

Earl S.K.Mallick, Director S. Raychaudhury, Earl Prince S.Mallick and others,

The RHMHM School,

USA, Japan, Russia, India and wwwm

and our respective affiliations.

I find your question slightly hard to comprehend. But my thinking, from what I understand, is that context matters a lot. Talking from the perspective of Africa, stock exchange performance and growth has been undermined by a plethora of factors mostly political and macroeconomic. The actors in the markets are mainly foreign and these uncertainties spook them. Overall, stock exchange performance within the time frame you have set may be said to have regressed relative to economic growth. One notable exception, however, is the Johannesburg Stock Exchange which enjoys 90 percent of all portfolio flows into Africa.

It is true that many factor(some somehow unique to Africa) have widened the gap in the African scenario, yet it has to be acknowledged that the gap cuts across economies. I do not think the real concern should be the existence of a gap but rather ensuring sustainable positive co-movement and narrowing the gap. This is because even though, it is possible to have the two segments - the GDP and Financial Markets(inclusive of Stock Market ) to grow at the same rate, it appears rather rare. One may note that the gap across national economies can not be the same because of national peculiarities and circumstances which affect growth in the two segments. Even on average, it may not be the uniform because of some notable external headwings that seriously truncated growth. Such phenomena include the 2007-2009 global financial melt down, major shocks in the oil market various stock market crashes in different markets among others. There are many perspectives to the question.

In the context of the above discussion, the following question arises:

In the context of the above discussion, I am asking you: Does the improvement of analytical techniques through the use of Business Intelligence, Data Science, Big Data etc. platforms in the processes of conducting financial, fundamental and technical analyzes improve the issue of forecasting the valuation of securities and other assets listed on stock exchanges?

What do you think about this topic?

Please reply

In the context of the above considerations, another important question arises: Are there any signals on the capital markets, including stock exchanges, of potential, potential slowdown in the global economy in 2020, which may be the result of the continuation of trade wars conducted between the world's largest economies?

What do you think about this topic?

Please reply

Dear Colleagues and Friends from RG,

The recent (September 2019) attack on oil refineries in Saudi Arabia using technologically advanced drones is an example of a serious problem that can have negative economic and political effects. This attack caused a significant increase in the price of oil. Fuel market analysts do not rule out negative developments in the future. If this type of attacks on industrial installations were to be repeated, it could cause a global fuel crisis, which occurred e.g. in the 1970s.

Who cares about causing this type of economic crisis now?

What do you think about this topic?

Please reply

Dariusz Prokopowicz

Great topic and fairly "hot of the press." I have a couple of observations. They are as follows:-

Dear Colleagues and Friends from RG,

For many years, there has been a strong correlation between the state of the economic situation in the domestic and global economy, between business cycles, the development of key economic growth factors and the national socio-economic and monetary policy pursued by the state, and the situation on the financial markets, the situation and cyclical trends for many years. listed on the stock markets. However, since the 1970s, there have been more and more examples of emerging dissonance, diversity, and lack of full correlation between business cycle shaping, the development of key economic growth factors and the state's socio-economic and monetary policy pursued by the state, and the situation on the financial markets, the economic situation and cyclical stock market trends on the stock markets. In addition, as the scope of this correlation diminishes, the risk of unpredictability of the situation on financial markets increases. During this period, there were also more than before national and supra-national currency, financial and economic crises. To the analysis of the issue of the above-mentioned correlation, determinants of economic development should be added, which earlier until the 1970s did not develop much or did not occur at all, such as the development of ICT information technologies, Internet and advanced data processing Industry 4.0, high deregulation range financial markets, the growing importance of central banking in the financial systems of individual countries, the development of the international market currency system based on the model of floating exchange rates without parity of a fixed economic factor, e.g. resignation from gold parity and parity of one international currency, development of investment banking based on investment in securities valuable technology companies with high credit risk, development of derivatives and their use in hedging transactions concluded on other financial markets, investment product markets in the real economy and markets of the construction sector.

In the context of the above problems of analyzing the correlation of the situation on capital markets with respect to the economic situation and key determinants of economic development, it is important to answer the following questions:

If Brexit had happened, if Brexit had become a fact, how could strong short-term and short-term concessions appear on international financial markets?

Can Brexit or other factors, such as deepening currency wars between the world's largest economies, be a key factor in generating another financial crisis?

Or maybe once again too much overvalued market valuations of securities on stock exchanges and other assets on other financial markets, on the currency and commodity markets may be an important factor of increased systemic credit risk?

Can moral hazard and unreliable compliance with risk management process policies and procedures significantly increase credit risk in commercial banks and become a key factor leading to another financial crisis?

Can the factors leading to the next financial crisis include the dynamic development of ICT and Industry 4.0 information technologies implemented to support stock market transactions and the process of automating credit risk management?

Can the source of a serious next stock market crash on the stock markets and another global financial crisis be the speculative rise in property prices in major economies and / or moral hazard and exceeding safe credit risk levels in investments in corporations developing new technologies in ICT, internet and advanced data processing Industry 4.0?

Please reply

I invite you to discussion

Thank you very much

Best wishes

Dariusz Prokopowicz

Nexuses...

Filis, G. (2010). Macro economy, stock market and oil prices: do meaningful relationships exist among their cyclical fluctuations?. Energy Economics, 32(4), 877-886.

ACs n SM effects...

Elbannan, M. A. (2011). Accounting and stock market effects of international accounting standards adoption in an emerging economy. Review of Quantitative Finance and Accounting, 36(2), 207-245.

The rise of China and fivefold growth of its stock market over the past decade have fueled a growing literature on this market in financial economics. ...

Carpenter, J. N., & Whitelaw, R. F. (2017). The development of China's stock market and stakes for the global economy. Annual Review of Financial Economics, 9, 233-257.

Capital market development and economic growth...

Barna, F., & Mura, P. O. (2010). Capital market development and economic growth: the case of Romania. Annals of the University of Petrosani, economics, 10(2), 31-42.

Dear D. A. Gayan Nayanajith, Thank you very much for the bibliographic sources provided. Thank you for providing valuable data sources in the above issues. I also encourage you to continue discussions on various topics on my profile.

I invite you to discussion and scientific cooperation.

Thank you very much.

Best wishes.

Dariusz Prokopowicz

Many current economic data already support the thesis that since March or April 2020, in many countries, the level of economic growth has fallen sharply and the economic crisis has begun. In some countries where the impact of the SARS-CoV-2 Coronavirus pandemic caused a deeper economic crisis, after a few months this crisis may turn into a debt crisis of the state's financial system. This applies, for example, to countries in which tourism, hotels, gastronomy and other services related to international tourism constitute a significant part of the entire national economy. If this difficult situation of deep economic downturn occurs in many countries, then in 2020 the global economy may very likely slow down its growth by several percent. compared to the previous year in the current and subsequent quarter of 2020. Accordingly, the economic direct and indirect impact of the SARS-CoV-2 Coronavirus pandemic causing Covid-19 disease on the global economy is very large. A high probability of recession in many countries in 2020 is forecast. The duration of a recession in individual countries can vary widely, from several weeks to several months. The economic downturn is also illustrated by the negative sentiment of stock market investors who operate on capital markets, commodity exchanges, stock exchanges, etc. The strongest sell-offs, declines in asset prices on these exchanges occurred when information about a developing pandemic spread around the world just before the moment of announcing by banks central information to the media that they plan to lower interest rates which they quickly did. Then governments of several countries announced their intention and after a few days began to introduce interventionist instruments under anti-crisis socio-economic policy, including fiscal policy (tax breaks for enterprises, deferred payment of taxes and contributions to the social security system, subsidies from public remuneration employees to limit the scale of employment reduction in companies, etc.) and anti-pandemic and sanitary safety instruments (home quarantine, wearing protective masks, restrictions on the movement of citizens in public places, temporary closing of restaurants, hotels, schools, kindergartens, universities, museums, cinemas, galleries, libraries, shopping centers, swimming pools, sports centers, service facilities, some types of shops, and in some countries a temporary ban on admission to city parks and forests has also been introduced). At that time (February - March 2020), asset valuations on capital markets exchanges fell to low levels, close to valuation levels from the period of the global financial crisis 2008. However, currently (early May 2020) positive information is appearing from many countries suggesting that the scale of the SARS Coronavirus pandemic -CoV-2 may already start to decrease or the pandemic is clearly falling into decline. Every day there is more and more positive data from various countries suggesting that the pandemic is decreasing, which means that the anti-pandemic security measures and instruments used could significantly help in reducing the scale and slowing down the development of the pandemic. All these processes should already be included in the valuation of commodities and securities on capital market exchanges.

In this regard, do current valuations of securities present the state of the economy as it is now or what will be in a few months?

What is your opinion on this topic?

Please reply.

I invite you to discussion.

Thank you very much for participating in the discussion.

Best wishes.

Dariusz Prokopowicz

Yes it has!

It could suggest that there is a relationship in between GDP growth and stock market performance, in the long run... Levine, R., & Zervos, S. (1999). Stock market development and long-run growth. The World Bank.

Osamwonyi, I. O., & Kasimu, A. (2013). Stock market and economic growth in Ghana, Kenya and Nigeria. International Journal of Financial Research, 4(2), 83.

Foresti, P. (2006). Testing for Granger causality between stock prices and economic growth.

Nurudeen, A. (2009). Does stock market development raise economic growth? Evidence from Nigeria. The review of Finance and Banking, 1(1), 16-26.

… The results suggest a strong and statistically significant relationship ... Van Nieuwerburgh, S., Buelens, F., & Cuyvers, L. (2006). Stock market development and economic growth in Belgium. Explorations in Economic History, 43(1), 13-38.

Dear Emmanuel V Murray, D A Gayan Nayanajith, Dear All Colleagues and Friends from RG, Thank you very much for participating in this discussion. Best wishes,

Have a nice day,

Dariusz Prokopowicz

Yes. true!

Dear Emmanuel V Murray,

Thank you very much. All the best!

Greetings,

Dariusz Prokopowicz

Hello Dear Everyone, Dear Colleagues and Friends from RG, In recent days (October 2020), the number of new SARS-CoV-2 (Covid-19) coronavirus infections in many countries is growing rapidly. Can the current increase in the scale of the pandemic's development cause a significant decline in economic growth during the fall and winter season? If the current, second wave of the SARS-CoV-2 coronavirus pandemic will deepen and in the next few weeks / months the number of Coronavirus infections and Covid-19 cases will significantly increase and the economic growth rate will decrease dramatically, is it possible another economic downturn in capital markets, including stock exchanges? Is it possible to repeat the scenario on this issue from March 2020, when the 1st wave of the pandemic was developing rapidly?

What's your opinion on this topic?

Please reply Greetings,

Dariusz Prokopowicz

Of recent years, there seem to be a divergence between stock market performance and economic activity. However, if measure on a long-run basis, it should be cointegrated. A representative stock market should reflect the economy as earnings drive value and stock prices of companies. Unless there are other factors at work, in the short-run to blur the distinction. Or the economy is subject to shocks and stock prices overreacted. The volatility in stock prices will be wider than the GDP or economy. Stock prices have a higher frequency compared to real economic sector data.

Dear Chung Tin Fah,

You highlighted an important issue in the context of the correlation of the situation on financial markets, capital markets and stock exchanges and changes in the economic situation. Yes, in recent years it was possible to diagnose many examples of discrepancies between the situation on the stock exchange and economic activity, the state of the economic situation. This is due to new events that were difficult to forecast. These events in 2020 include, in particular, the emergence and development of the SARS-CoV-2 (Covid-19) coronavirus pandemic. When the pandemic appeared, when in March 2020 the World Health Organization announced the state of a global epidemic, i.e. a pandemic, there was a panic sale of shares and other securities on the stock markets. In addition, the currencies of small, developing economies depreciated, and commodities on commodity exchanges also fell. It was a relatively short-lived, panic, but strong bear market in the capital markets. however, when at the beginning of October 2020 pharmaceutical companies announced that they were finishing testing work and would soon start mass production of highly effective vaccines, there was a clearly positive situation, improving moods, improving the economic situation, rising valuation, boom on stock exchanges. No such drastic and rapid changes in the economic situation have been recorded in the real economy. The above-mentioned situations confirm the thesis that stock exchanges are interpreted by many observers and participants of these markets as the so-called economy barometers. However, the picture of the state of the economy presented by changing levels of stock exchange indices is less often the picture of real time. However, more often it is a picture of the condition of the entire economy, including individual sectors and industries, which will occur in a few weeks or several months. Therefore, greater correlations between the situation on the stock exchange and economic activity, the state of the economic situation, occur over a longer period. In connection with the above, a clear improvement in the economic situation on the securities markets in the period October - December 2020 may suggest that in 2021 there will be a clear improvement in the economic situation, including the level of recession or significant economic growth, unemployment will drop, investments and income of entities will increase. economic and citizen etc. in many countries. This may be largely correlated with the projected expiry of the current pandemic by mid-2021 at the latest. The end of the SARS-CoV-2 (Covid-19) coronavirus pandemic means the end of the use of lockdowns, i.e. temporary closure of entire sectors, industries, types of economic entities, and the very end of the economic crisis.

Regards,

Happy New Year 2021

Dariusz Prokopowicz

Thank you for your detailed analysis.