Investigation the Equilibrium Relationship Between Micro and Macroeconomic Variables and Amman Stock Exchange (ASE) Index Through ARDL Model (The Bound Test Approach)

Abstract

This paper investigates the equilibrium relationship between micro and macroeconomic variables and Amman stock exchange (ASE) index, through ARDL model (the bound test approach), by using monthly data for the period 2011:1 to 2014:3. Unit root test based on Augment Dickey Fuller (ADF) test procedure shows that the set of the study variables (industrial production index (IPI), money supply (MS), Investors confidence (NJI), market capitalization (MC), and market price/earnings (PE)) are integrated of orders one and zero. Consequently the Autoregressive Distributed Lag (ARDL) approach to Cointegration is used. The empirical results reveal that the Amman Stock Exchange (ASE) performance as measured by ASE price index ,and its determinants namely industrial production index (IPI), money supply (MS), Investors confidence (FII NJI), market capitalization (MC), and market price/earnings (PE) have a long-run equilibrium relationship. To test the stability of short run, and long run coefficients in the ARDL error correction model the CUSUM, and CUSUMS Q tests were employed, and the results show that the model is structurally stable.