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Volume :21 Issue : 81 1996      Add To Cart                                                                    Download

STOCK PRICES AND MONEY SUPPLY IN THE SAUDI ARABIAN ECONOMY: EVIDENCE FROM CO-INTEGRATION ANALYSIS

Auther : By: Dr. Suleiman M. Al-Turki

This study attempts to present a consistent specification of the Monetary Portfolio Model and the Efficient Market Hypothesis that is amenable to econometric testing through co-integration analysis. The suggested model is applied to test the relationship between stock prices and money supply in the Saudi Arabian economy. It is found that Saudi stock prices do not co-integrate with Saudi money supply, suggesting that stock prices reflect money supply information efficiently. Further testing shows that it is not possible to develop a stock trading rule based on money supply information since changes in stock prices do not lag behind changes in money supply.

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