Stock Market Performance and Economic Growth in Morocco

Joerg Wild¹ and Hind Lebdaoui²

¹Shanghai University of Finance and Economics, School of Finance, Shanghai, China joerg.wild@gmail.com

²Shanghai University of Finance and Economics, School of Finance, Shanghai, China hind.encg@gmail.com

Accepted 19 May 2014

Abstract

This paper explores the relationship between stock market development and economic growth in Morocco for the period from 2000 to 2013 on quarterly basis. As proxies for stock market development, we choose the Morocco All Shares Index (MASI), market liquidity, market capitalization and a principal component analysis based stock market development index. After testing for cointegration, the dynamic interactions between GDP growth and stock market development are investigated using both vector error correction model (VECM) and Granger-causality techniques. The results show that long run association exists between stock market development and economic growth, and unidirectional Granger-causalities running from MASI, traded volume and stock market index to the real GDP exist, but no evidence is confirmed for a Granger-causality from the capitalization to the real GDP. The VECM revealed the presence of adjustment mechanisms for the stock market in the long run; deviations from the equilibrium are corrected in the case of market capitalization and the stock market development composite at 1.2% and 0.4% on a yearly basis. The results provide evidence of the demand-following hypothesis and suggest the presence of threshold level before a positive interaction between the real and financial sectors takes effect.

Keywords: Morocco, stock market, economic growth, Granger-causality, cointegration, VECM.

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