THE IMPACT OF MACROECONOMIC VARIABLES ON STOCK MARKET DEVELOPMENT IN ZIMBABWE

This paper examines the impact of macroeconomic variables on stock market development in Zimbabwe using Autoregressive Distributed Lag (ARDL) model. The macroeconomic variables used are, exchange rates, interest rates, money supply, gross domestic product (GDP) and inflation rate while stock market capitalization is used as a proxy for stock market development. The diagnostic tests conducted revealed that the model is not suffering from any regression violations and all variables were stationary in levels at first difference. The ARDL bounds test revealed the presence of cointegration between stock market development and macroeconomic variables hence an error correction model was adopted. The ARDL error correction model reveled that in the long run only exchange rate has a significant positive relationship with stock market development and only inflation has a negative insignificant relation with stock market development. GDP, money supply and interest rates have a positive insignificant relationship with stock market development. The Granger causality results show that there is a bidirectional relationship between stock market capitalization and exchange rate in Zimbabwe, no causality between stock market development and real GDP, unidirectional causality between inflation and stock market capitalization, running from stock market capitalization to inflation