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Top1. Introduction
During the past few years, a considerable focus of researchers has been observed on the relationship between macroeconomic factors and stock market development (Moore & Wang, 2014). This relationship has been examined theoretically and empirically; however, the main driving forces behind this relationship is still unexplored. Researchers are unanimously agreed upon the importance of stock markets and their role in a particular economy (whether developed or emerging). More specifically, efficient markets reflect a healthy and strong economy. However, the uncertainty in the stock markets in the form of returns volatility to investors can force the local and foreign investors to withdraw their funds from these markets. In the last couple of decades as also observed by the researchers, there is high correlation is found in the development of stock markets and the country’s economic factors (Khan et al., 2016). Furthermore, investors are interested to diversify their investments in the uncorrelated markets of the world. More precisely, investors are seeking the investment opportunities in both developed and emerging markets (Jan et al., 2018).
The current study considers the stock markets of US (developed) and UAE (emerging). The history of stock markets in UAE is not very long and most of them are established only a few years ago. Particularly, the Abu Dhabi Securities Exchange (ADX) (formerly known as Abu Dhabi Securities Market (ADSM)) and the Dubai Financial Markets (DFM) are the most recent and important markets of Middle East as a whole (Obeidat, 2009). 1The Abu Dhabi Securities Exchange was created on 15th November 2001 and Dubai Financial Market started functions on 26th March 2000. These were created under the supervision of Emirates Securities and Commission Authority and also the members of “Federation of Euro-Asian Stock Exchanges”. The number of listed firms at ADX is greater than DFM but the trading volume is higher at DFM than ADX. There are four main sectors i.e. Banking, Insurance, Service, and Industry and Hotels listed on Abu Dhabi Securities Exchange. In short both of these emerging stock markets are playing a major role in the financial development of UAE.
The United States stock markets on the other hand are considered as the largest markets of the world. The major stock exchanges of US include NYSE, AMEX, and NASDAQ. The NYSE (also known as “the Big Board”) was established on May 17, 17922. The NYSE is considered one of the oldest and largest stock exchanges by market capitalization of its listed firms at US$ 21.35 trillion as of June 2017. Similarly, the average daily trading worth estimated as on December 2013 equals to US$170 billion.
The remaining of the paper is divided into four other sections. The section two presents the existing literature on the researched area. In section three the empirical models, analytical procedure, data, and methodology is discussed. Section four discusses the empirical results. The final section will conclude the paper.