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You dont own stocks. Stocks own you.TONY BALIS

Significant AssociationsThe relationship between Stock market index

and economic growth has always received

much attention in the discipline of Finance

Over a period of time, it has been observed

that the economic growth indicators and the

stock market index of a nation move in asimilar direction

Moreover, the compounded annual growth

rate of the US GDP closely aligns with the

same of Standard and Poors 500 Index

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Never invest in any idea you can't illustrate with

a crayon.PETER LYNCH

Persistent ArgumentThe argument is whether Stock market

development causes economic growth or it is a

consequence of augmented economic

activities

To test the association, Granger Causality test

has been run on the following variables -Standard and Poors (S & Ps) 500 Index

Index for Industrial Production in US

Quarterly data has been used for the period

1950-2010

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When buying shares, ask yourself, would you buy the whole

company?RENE RIVKIN

Economic impacts of a Stock MarketWealth Effect: When stock markets rise, the

investors become wealthy and are willing to

spend more

Effect on Pensions: If share prices fall too

much, pension funds can struggle to meet

their promises

Investor Confidence: Bad headlines of falling

share prices are another factor which

discourage investors from spending

Firms Investment: Plummeting stock pricesmakes it much more difficult for firms to raise

finance on the stock market

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ConclusionThe empirical evidence strongly supports that

greater stock market development and liquidity

enhances or at least precedes economic growth

More liquid stock markets and enhanced risk

sharing also aids in the undertaking of longer

tenure investments with better returns

Stock markets should become much more

robust and effectual so that the cost of capital

or equity risk premium could be brought down

You can never predict when that unknown torpedo will come

out of the dark and smash the price of a stock.RALPH SEGER

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We simply attempt to be fearful when others are greedy and to

be greedy only when others are fearful.WARREN BUFFETT

Supporting ResearchesLevine and Zervos presented a paper at the

World Bank called Capital Control

Liberalization and Stock Market developmentin 1995

The results of the paper clearly exhibited that

stock market liquidity rose significantly in

twelve out of the fourteen nations that

liberalized controls on international capital

flows

For instance, Chile liberalized constraints on

the repatriation of dividends by foreign

investors in January, 1988

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RecommendationsRegulatory, accounting and legal systems

should be designed to ease the process with

which stockholders trade the securities

The proposed accounting practice of IFRS

should be implemented as it will make easier

for Indian companies to raise cheaper funds

overseas

Full capital account convertibility should be

permitted to enhance the stock market liquidity

I hate weekends because there is no stock market.RENE RIVKIN

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Research Paper used for Reference

Easiest way to earn money in stock Market. Ask a layman to

trade, Sell whatever he buys, Buy whatever he sells.HRISHIKESH SENGUPTA

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Other References for the Project

The economy depends about as much on economists as the

weather does on weather forecasters.JEAN-PAUL KAUFFMANN

(n.d.). Retrieved from

http://astonjournals.com/manuscripts/Vol2010/BEJ-1_Vol2010.pdf

ECONOMICS HELP. (n.d.). Retrieved fromhttp://www.economicshelp.org/blog/stock-market/how-does-the-

stock-market-effect-the-economy/

Google. (n.d.). Retrieved from www.google.com/publicdata

IMF. (n.d.). Retrieved from

http://www.imf.org/external/pubs/ft/fandd/1996/03/pdf/levine.p

dfSamy BEN NACEUR, S. G. (n.d.). Does Stock Market Liberalization

Spur Economic and Financial Development in the MENA Region?

Retrieved from

https://netfiles.uiuc.edu/skarimi2/www/MEEA/Paper%20by%20Be

n%20Naceur,%20Ghazouani,%20and%20Omran.pdf

Stock Markets: A spur to the Economic Growth. (n.d.). Retrievedfrom http://actrav.itcilo.org/actrav-

english/telearn/global/ilo/equity/fdstock.htm

Yahoo Finance. (n.d.). Retrieved from http://finance.yahoo.com/

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Goodness is the only investment that never fails.

HENRY DAVID THOREAU

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EXHIBIT-1

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EXHIBIT-2First Variable: S & P 500 Index

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EXHIBIT-3Second Variable: IIP Index (A proxy for

economic growth)

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Granger Causality Results with

different lag values

EXHIBIT-4

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EXHIBIT-5Granger Causality Results with

different lag values (*Continued)

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EXHIBIT-6

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Regression Output

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EXHIBIT-7

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The table also indicates that

easing international capital flow

constraints may increase liquidity,but it may also increase volatility

But volatility should not be of

much concern as it does not put

any reckonable impact on thelong-term growth

Thus, if policymakers have the

perseverance to withstand some

short-run volatility, liberalizationoffers expanded prospects for

long-run economic growth