Macroeconomic determinants of stock market development in the Sultanate of Oman

Abstract

This study evaluates the effect of macroeconomic variables on the development of the Omani stock market using quarterly data from 2010 Q1–2022 Q4. Financial markets are vital to every economy, as they’re the most important engines. Specifically, the impact of the inflation rate, the development of the banking sector, liquidity of the stock market, trade openness, economic growth, and oil prices on Muscat Stock Exchange development were investigated to help policymakers develop the stock market and reinforce sustainable economic growth. Insufficient data prevented the use of foreign direct investment (FDI). The literature showed significant variations in determining the essential macroeconomic factors that affect the stock market's development. There was a dearth of such studies conducted in Oman. The autoregressive distributed lag (ARDL) model was employed, and the macroeconomic variables and Omani financial market development were found to be cointegrated. The long-term determinants were the liquidity of the stock market, oil prices, and the development of the banking sector. In the short term, the drivers were economic growth, the stock market's liquidity, and the development of the banking sector. The researcher advises policymakers to increase stock market liquidity through expediting listing procedures and simplifying initial public offering (IPO) processes.