Perspectives from ARDL Analysis on Macroeconomic Factors and Stock Market Performance in Palestine

Authors

Ra’fat Jallad

 

Abstract

This study examines the relationship between economic factors and asset values in the Palestine Exchange index (Al-Quds Index) from 1998 to 2022. The research used the Autoregressiv Distributed Lag (ARDL) bounds test to examine the relationship between three macroeconomi factors: real GDP growth, net portfolio investment, and exchange rate and the stock market return. The findings demonstrate that there is a substantial and positive correlation between real GDP growth and stock returns, both in the short and long run. However, there is no noticeable effect of net portfolio investment on stock returns. The absence of impact may be attributed to variables such as the substantial risk linked to the Palestinian equities market and the restricted investment prospects. Nevertheless, the exchange rate constantly and significantly affects stock returns, regardless of the time period. This effect is likely caused by differences between the currency used for operations and the currency used for financial reporting by Palestinianlisted companies. Consequently, their profits and cash flows decrease when the exchange rate appreciates. This research highlights the significance of firms reducing their vulnerability to foreign currency risk and provides significant understanding of the complex connection between macroeconomic circumstances and stock performance in developing economies.

DOI: 10.51958/AAUJBL2025V9I1P5