Relationships and Dynamic Feedback Effects between Financial Market Risks and Macroeconomic Stability Variables in Jordan
DOI:
https://doi.org/10.35516/jjes.v12i1.2122Keywords:
Financial Market Risk, Jordan, Two-State Markov Switching Process, Vector AutoregressionAbstract
Objectives: This study examines the complex relationship between financial market risk (Financial Market Risk and three indicators of macroeconomic stability—the unemployment rate, headline inflation, and breakeven inflation using data ranging from January 2023 to December 2022.
Methods: Using an asymptotic vector autoregression (VAR) optimised by the Schwartz information criterion (SIC) and a Maximum likelihood two-state Markov switching process, this study investigates the dynamic interactions and feedback effects between these macroeconomic variables in relation to log shifts in Financial Market Risk.
Results: The results reveal different patterns in the impact of financial market risks on unemployment and inflation, as the results show a large and positive impact of financial market risks on unemployment. The results of the study indicate the presence of heterogeneous effects of financial market risks on inflation and the existence of a relationship between financial market risks and indicators of macroeconomic stability. There is also a relationship between forced migration and low inflation, and these trends indicate the existence of a dynamic between the market’s perception of risks and the expected development of inflation. The relationship between the rate of forced migration and break-even inflation rates implies a correlation between the market's perception of risk and long-term inflation expectations.
Conclusions: This study concludes that concerns about a slowing economy (higher unemployment) and falling inflation (market-implied inflation) are the main factors worsening market risk.
References
Abaidoo, R., & Agyapong, E. K. (2023). Inflation uncertainty, macroeconomic instability and the efficiency of financial institutions. Journal of Economics and Development, 25(2), 134-152. https://doi.org/10.1108/JED-09-2022-0166
Abdelbaki, H. H. (2019). Macroeconomic determinants of non-performing loans in GCC economies: does the global financial crisis matter?. International Journal of Economics and Business Research, 17(4), 433-447.
https://doi.org/10.1504/IJEBR.2019.099973
Abuoliem, N., Nor, S. M., Lola, M. S., & Matar, A. (2019). Dynamic interactions among the industrial sector and its determinants in Jordan. Investment Management and Financial Innovations, 16(4), 325-341. doi:10.21511/imfi.16(4).2019.28
Abuoliem, N., Nor, S. M., Matar, A., & Hallahan, T. (2019). Crude oil prices, macroeconomic indicators and the financial sector in Jordan: Dynamic causes and responses. Journal of International Studies (2071-8330), 12(3), 131-146
Al Frijat, Y. S., Albawwat, I. E., & Elamer, A. A. (2023). Exploring the mediating role of corporate social responsibility in the connection between board competence and corporate financial performance amidst global uncertainties. Corporate Social Responsibility and Environmental Management, 1-17. https://doi.org/10.1002/csr.2623
Alhawamdeh, H., Al-Eitan, G. N., Hamdan, M. N., Al-Hayek, Y. A. M., Zraqat, O., Alhawamdeh, A. M., ... & Alkhawaldeh, B. Y. (2023b). The Role Of Financial Risk Tolerance And Financial Advisor Management In Mediating The Relationship Between Financial Attitudes, Financial Knowledge, Financial Anxiety, And Sustainable Financial Retirement Planning. Journal of Namibian Studies: History Politics Culture, 33, 5071-5100. https://doi.org/10.59670/jns.v33i.3001
Alkhawaldeh, B. Y. S., Alhawamdeh, H., Almarshad, M., Fraihat, B. A. M., Abu-Alhija, S. M. M., Alhawamdeh, A. M., & Ismaeel, B. (2023a). The effect of macroeconomic policy uncertainty on environmental quality in Jordan: Evidence from the novel dynamic simulations approach. Jordan Journal of Economic Sciences, 10(2), 116-131. https://doi.org/10.35516/jjes.v10i2.1399
Alqaralleh, H., Al-Majali, A., & Alsarayrh, A. (2021). Analyzing the Dynamics Between Macroeconomic Variables and the Stock Indexes of Emerging Markets, Using Non-linear Methods. International Journal of Financial Research, 12(3), 193-204. https://doi.org/10.5430/ijfr.v12n3p193
Al-Rjoub, S. A. (2021). A financial stability index for Jordan. Journal of Central Banking Theory and Practice, 10(2), 157-178. https://doi.org/10.2478/jcbtp-2021-0018
Augustyniak, M. (2014). Maximum likelihood estimation of the Markov-switching GARCH model. Computational Statistics & Data Analysis, 76, 61-75.
Augustyniak, M., Boudreault, M., & Morales, M. (2018). Maximum likelihood estimation of the Markov-switching GARCH model based on a general collapsing procedure. Methodology and Computing in Applied Probability, 20(1), 165-188.
Basheer, Z. M., Jadaan, O. A., & Mohammed, H. D. (2022). Determinants of Macroeconomics in Jordanian Islamic Banks. Journal of Business and Management Studies, 4(4), 179-186. https://doi.org/10.32996/jbms.2022.4.4.17
Borio, C. (2011). Rediscovering the macroeconomic roots of financial stability policy: Journey, challenges, and a way forward. Annu. Rev. Financ. Econ., 3(1), 87-117.
Braun, J. (2023). Taming Housing and Financial Market Instability: The Effect of Heterogeneous Banking Regulations. Journal of Real Estate Research, 1-34. https://doi.org/10.1080/08965803.2023.2206284
Chomicz-Grabowska, A. M., & Orlowski, L. T. (2020). Financial market risk and macroeconomic stability variables: dynamic interactions and feedback effects. Journal of Economics and Finance, 44, 655-669. https://doi.org/10.1007/s12197-020-09505-9
Fraihat, B. A. M., Ahmad, A. Y. B., Alaa, A. A., Alhawamdeh, A. M., Soumadi, M. M., Aln'emi, E. A. S., & Alkhawaldeh, B. Y. S. (2023). Evaluating technology improvement in sustainable development goals by analysing financial development and energy consumption in Jordan. International Journal of Energy Economics and Policy, 13(4), 348. https://doi.org/10.32479/ijeep.14438
Gao, Y., Li, Y., & Wang, Y. (2023). The dynamic interaction between investor attention and green security market: an empirical study based on Baidu index. China Finance Review International, 13(1), 79-101. https://doi.org/10.1108/CFRI-06-2021-0136
Ginindza, M., & Maasoumi, E. (2013). Evaluating inflation targeting based on the distribution of inflation and inflation volatility. The North American Journal of Economics and Finance, 26, 497-518.
Godil, D. I., Sarwat, S., Khan, M. K., Ashraf, M. S., Sharif, A., & Ozturk, I. (2022). How the price dynamics of energy resources and precious metals interact with conventional and Islamic Stocks: Fresh insight from dynamic ARDL approach. Resources Policy, 75, 102470. https://doi.org/10.1016/j.resourpol.2021.102470
Goldstein, I. (2023). Information in financial markets and its real effects. Review of Finance, 27(1), 1-32. https://doi.org/10.1093/rof/rfac052
Gopinathan, R., & Durai, S. R. S. (2019). Stock market and macroeconomic variables: new evidence from India. Financial Innovation, 5, 1-17. https://doi.org/10.1186/s40854-019-0145-1
Huang, W. Q., & Liu, P. (2023). Cross-market risk spillovers among sovereign CDS, stock, foreign exchange and commodity markets: An interacting network perspective. International Review of Financial Analysis, 90, 102875. https://doi.org/10.1016/j.irfa.2023.102875
Ismaeel, B., Alkhawaldeh, B. Y., & Alafi, K. K. (2023). The role of marketing intelligence in improving the efficiency of the organization: An empirical study on Jordanian hypermarkets. Journal of Intelligence Studies in Business, 13(2), 32-42. https://doi.org/10.37380/jisib.v13i2.1082
Kedward, K., Ryan-Collins, J., & Chenet, H. (2023). Biodiversity loss and climate change interactions: financial stability implications for central banks and financial supervisors. Climate Policy, 23(6), 763-781.
https://doi.org/10.1080/14693062.2022.2107475
Khan, M. I., Teng, J. Z., Khan, M. K., Jadoon, A. U., & Khan, M. F. (2021). The impact of oil prices on stock market development in Pakistan: Evidence with a novel dynamic simulated ARDL approach. Resources Policy, 70, 101899. https://doi.org/10.1016/j.resourpol.2020.101899
Liu, Z., Ding, Z., Lv, T., Wu, J. S., & Qiang, W. (2019). Financial factors affecting oil price change and oil-stock interactions: a review and future perspectives. Natural Hazards, 95, 207-225. https://doi.org/10.1007/s11069-018-3473-y
Liu, Z., Zhu, T., Duan, Z., Xuan, S., Ding, Z., & Wu, S. (2023). Time-varying impacts of oil price shocks on China’s stock market under economic policy uncertainty. Applied Economics, 55(9), 963-989. https://doi.org/10.1080/00036846.2022.2095342
Mechri, N., de Peretti, C., & Hamad, S. B. (2022). How Do Macroeconomic Variables Volatilities Affect Stock Markets Dynamics? Evidence From MENA Zone. International Journal of Business, 27(3), 1-21.
Mohammed, M., & Zheng, M. (2023). The impact of macroeconomic factors on the propensity of risk: How macroeconomic factors influence the level of risk in different stock market. Master thesis, The Blekinge Institute of Technology is a public, Sweden.
Moussa, F., & Delhoumi, E. (2022). The asymmetric impact of interest and exchange rate on the stock market index: evidence from MENA region. International Journal of Emerging Markets, 17(10), 2510-2528. https://doi.org/10.1108/IJOEM-01-2020-0089
Nguyen, T., Chaiechi, T., Eagle, L., & Low, D. (2020). Dynamic impacts of SME stock market development and innovation on macroeconomic indicators: A Post-Keynesian approach. Economic Analysis and Policy, 68, 327-347. https://doi.org/10.1016/j.eap.2020.10.002
Peykani, P., Sargolzaei, M., Takaloo, A., & Valizadeh, S. (2023). The Effects of Monetary Policy on Macroeconomic Variables through Credit and Balance Sheet Channels: A Dynamic Stochastic General Equilibrium Approach. Sustainability, 15(5), 4409. https://doi.org/10.3390/su15054409
Saraceno, F. (2022). The return of fiscal policy: The new European Union macroeconomic activism and lessons for future reform (No. 59). ILO Working Paper.
Satoto, E. B. (2023). The Effect of Fuel Price Fluctuations, Exchange Rates, and Profitability on Stock Returns and Inflation as Intervening Variables. Jurnal Ilmiah Manajemen dan Bisnis, 8(1), 110-127. https://doi.org/10.38043/jimb.v8i1.4460
Sethi, S. (2015). Inflation, inflation volatility and economic growth: The case of India. IUP Journal of Applied Economics, 14(3), 25.
Shakatreh, M., Moh’d Ahmad Mansour, A., & Alatyat, Z. A. (2022). Corporate tax features in Jordan affecting business decisions: Strengthening finance accountability in emerging economies. International Journal of Professional Business Review: Int. J. Prof. Bus. Rev., 7(4), 24. https://doi.org/10.26668/businessreview/2022.v7i4.e739
Smets, F. (2018). Financial stability and monetary policy: How closely interlinked?. 35th issue (June 2014) of the International Journal of Central Banking.
Taha, R., Taha, N., & Ananzeh, H. (2023). Determinants of litigation risk in the Jordanian financial sector: the role of firm-specific indicators. Journal of Financial Reporting and Accounting. Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-05-2023-0239
Zraqat, O. M. (2020). The moderating role of business intelligence in the impact of big data on financial reports quality in Jordanian telecom companies. Modern Applied Science, 14(2), 71-85. https://doi.org/10.5539/mas.v14n2p71
Zraqat, O., Zureigat, Q., Al-Rawashdeh, H. A., Okour, S. M., Hussien, L. F., & Al-Bawab, A. A. (2021). The effect of corporate social responsibility disclosure on market performance: Evidence from Jordan. The Journal of Asian Finance, Economics and Business, 8(8), 453-463. https://doi:10.13106/jafeb.2021.vol8.no8.0453
