Does the stock market really cause unemployment? A cross-country analysis |
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Institution: | 1. School of Economics and Management, Open University of Cyprus, 2252, Latsia, Cyprus;2. Institute of Applied Statistics, Johannes Kepler University, Altenbergerstraße 69, 4040 Linz, Austria;3. Department of Business and Management, Webster Vienna Private University, Praterstraße 23, 1020 Vienna, Austria;4. Department of Economics, University of Pretoria, Pretoria, 0002, South Africa;1. Statistics Department, International Monetary Fund, Washington, D.C. 20431, USA;2. Research Department, International Monetary Fund, Washington, D.C. 20431, USA |
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Abstract: | This study examines the relationship between the stock market and unemployment in 30 advanced and 11 developing and emerging countries. The results show that the unemployment rate and stock prices are cointegrated in all country groups; further, the causality between stock prices and unemployment appears in all country groups. Specifically, I found a particularly strong and one-way causal direction from stock prices to the unemployment rate in G7 countries. There is a strong bilateral causal relationship between stock prices and unemployment for other advanced countries. However, in the 11 developing and emerging countries, the causality test results indicate a strong Granger causality from unemployment to stock prices. The results for developing and emerging countries suggest that the unemployment rate can help forecast stock prices, but not vice versa. These findings complement existing studies and deliver useful implications for investors and policymakers, and suggest some new lines for future research. |
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Keywords: | Stock market Unemployment Developing countries Granger causality Panel cointegration |
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