The Role of Stock Market Returns on Socioeconomic

The Role of Stock Market Returns on Socioeconomic

Stock market returns refer to the incomes generated by investors from the stock markets. The incomes generated may be profits acquired through trade or dividends allocated to the owners of the company. Stock trading has become prevalent in most parts of the world today. It has allowed many of the enterprises raise capital and has enabled individuals to innovate and venture into business aiding economic development in their countries (Valickova pg. 516). Stock market returns play different roles impacting social and economic development. They include;

Creation of Capital

The stock markets in the economy act as platforms where distinct business people collude to transact on the shares with the main aim of raising capital. Stock exchange provides the capital needed by the entrepreneurs for venturing into new opportunities or expanding their operations (Tulsian pg. 92). If it were not for the stock markets, business people would operate at the mercy of investors which would in return discourage entrepreneurship and limit capital creation in the economy.

Economic Transparency

Financial markets in many parts of the world are regulated through policies set out by their governments and distinct agencies. The functions oversee the trading operations ensuring security, transparency, and legality in the systems. They thus raise public confidence in the trading system which will, therefore, encourage many investors to bring in their funds. Many investors rely on transparency, credibility and proper ethical standards to gain confidence in the trading system (Pevzner pg. 218).

Social Integration

Stock trading brings together investors from different social backgrounds that have similar objectives. The stock markets benefit the minority by giving them an opportunity to buy shares of new companies which are on public offer. Stock markets enable collusion of distinct members in the society (Ayadi pg. 220). It enables integration between different genders and classes for individuals with a similar agenda that is capital creation.

Economic Status Signal

The stock market can be used as a metric of countries economic state focusing on the boom, recession, and dynamism in the financial market targets. The stock prices generated through the capital gains and losses can act as a measure of the nation’s fiscal status. Countries with steady growth in the stock rates indicate adequate institutional performances and constant economic growth. On the other hand, nations with declining stock rates indicate inadequacy in institutional performances which may either be instituted by political or economic factors (Valickova pg. 520).

Investment Servicing

Stock markets also act as an alternative way of increasing one’s capital. For instance, investors may decide to shift investing in banks and invest in share markets. This may be initiated by the higher gains generated in the share markets as compared to the interest gains from the bank savings (Ayadi pg. 215). Through the stock exchange market is further characterized by diversity and flexible opportunities giving more confidence to the investor. The stock markets thus assure the investor of maximized returns on investments rather than languishing funds in a banking institution.


The stock markets impact a countries economy in various ways. For instance, when the stock price decline, the level of spending falls which is followed by a consequent fall on the investor’s trust which in return reduces the level of capital circulation in the economy. Consequently, when the stock prices go up, investor trust rises, expenditure goes up and capital flow increases. The governments can thus use stock markets as a tool in regulating monetary circulation and economic regulation (Ngare pg. 27).


Work Cited

Ayadi, Rym, et al. “Financial development, bank efficiency, and economic growth across the Mediterranean.” Economic and Social Development of the Southern and Eastern Mediterranean Countries. Springer, Cham, 2015. 219-233.

Ngare, Everlyne, Esman Morekwa Nyamongo, and Roseline N. Misati. “Stock market development and economic growth in Africa.” Journal of Economics and Business 74 (2014): 24-39.

Pevzner, Mikhail, Fei Xie, and Xiangang Xin. “When firms talk, do investors listen? The role of trust in stock market reactions to corporate earnings announcements.” Journal of Financial Economics 117.1 (2015): 190-223.

Tulsian, Pradeep G., and V. Chari. “Interrelationship between Indian Stock Market Development and Economic Development of India for the Period: 1981-2015.” Research Bulletin 42.2 (2016): 86-97.

Valickova, Petra, Tomas Havranek, and Roman Horvath. “Financial development and economic growth: A meta‐analysis.” Journal of Economic Surveys 29.3 (2015): 506-526.

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