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The stock market and investment in the small and open Norwegian economy

Author

Listed:
  • Øystein Gjerde

    (Department of Finance and Management Science, Norwegian School of Economics and Business Administration, 5045 Bergen, Norway)

  • Kjell Henry Knivsflå

    (Department of Accounting, Auditing and Law and Foundation for Research in Economics and Business Administration, Norwegian School of Economics and Business Administration, 5045 Bergen, Norway)

  • Frode Sættem

    (Department of Finance and Management Science and Foundation for Research in Economics and Business Administration, Norwegian School of Economics and Business Administration, 5045 Bergen, Norway)

Abstract

The relationship between the stock market and investment is analyzed by utilizing a multivariate vector autoregressive model, which also includes fundamentals represented by production and the bank interest rate. Two important results appear on the basis of data from the small, open economy of Norway. The financial market has no lead effect on real activity, as neither the stock market nor the credit market can predict future investment or production. On the contrary, current stock returns correlate negatively with lagged growth in investment, and positively with current growth in production. In addition, changes in the bank interest rate have a positive effect on future stock returns, production leads investment positively, and both production and the bank interest rate become exogenous variables in our model.

Suggested Citation

  • Øystein Gjerde & Kjell Henry Knivsflå & Frode Sættem, 2001. "The stock market and investment in the small and open Norwegian economy," Empirical Economics, Springer, vol. 26(3), pages 565-580.
    • Handle: RePEc:spr:empeco:v:26:y:2001:i:3:p:565-580
    Note: received: November 1997/Final version received: October 2000
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    Cited by:

    1. Engelbert Stockhammer & Erik Bengtsson, 2020. "Financial effects in historic consumption and investment functions," International Review of Applied Economics, Taylor & Francis Journals, vol. 34(3), pages 304-326, May.
    2. Johann Burgstaller, 2002. "Are stock returns a leading indicator for real macroeconomic developments?," Economics working papers 2002-07, Department of Economics, Johannes Kepler University Linz, Austria.

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