Equity market performance and public debt: an empirical investigation

Lim, K.Y. ORCID: 0000-0003-1978-176X, 2020. Equity market performance and public debt: an empirical investigation. New Zealand Economic Papers, 54 (1), pp. 16-38. ISSN 0077-9954

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Abstract

While the empirical relationship between public debt and economic growth has been well-researched, there is a gap in terms of understanding the relationship between equity market performance and public debt. Based on propositions derived from a theoretical model and using a quarterly unbalanced panel dataset of 56 economies in the period 1995–2017, we examine this nexus by first estimating a threshold value of public debt above which equity market performance is adversely affected by a change in public debt. After that, the dynamics of equity market performance and change in public debt are examined. We estimate the threshold level to be approximately 17.97 percent of GDP. The short-run and long-run multipliers of a one-percent increase in public debt on equity market returns are 11.57–37.59 and 27.51–78.72 percentage points. These dynamics appear to be different between the economies that are below and above the estimated debt threshold.

Item Type: Journal article
Publication Title: New Zealand Economic Papers
Creators: Lim, K.Y.
Publisher: Taylor & Francis
Date: 2020
Volume: 54
Number: 1
ISSN: 0077-9954
Identifiers:
NumberType
10.1080/00779954.2019.1567574DOI
Divisions: Schools > Nottingham Business School
Record created by: Jonathan Gallacher
Date Added: 29 Jan 2019 11:57
Last Modified: 27 Jul 2020 03:00
URI: http://irep.ntu.ac.uk/id/eprint/35710

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