WFE Model Finds Equity Market Development Can Lift…
By Rick Steves
AI summary of the source article
A World Federation of Exchanges research paper found that stock valuation shifts have stronger investment effects in advanced economies, whereas structural market improvements drive larger modeled gains in emerging and developing economies.
Why it matters
For policymakers, the model suggests that the economic case for reform can differ by financial structure.
Key facts
- Economist Ishak Demir modeled stock market transmission to the real economy across 13 advanced and 11 emerging and developing economies using quarterly data from 2003 to 2019.
- Valuation changes affect business investment more in advanced economies, while household wealth channels contribute little to aggregate output in both groups.
- Structural improvements in depth, liquidity, and institutional quality operate through productivity, yielding larger investment responses in emerging and developing economies.
Source excerpt · FinanceFeeds
Equity markets can affect the real economy through household wealth, company valuations, financing conditions and productivity, but those channels do not work equally across countries. A new World Federation of Exchanges research paper models how stock market conditions transmit to output and investment. Its central result is a split: valuation changes have stronger investment effects in advanced…