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Long Run Relationships between Stock Market Returns and Macroeconomic Performance: Evidence from Turkey

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Author Info
Osman Karamustafa (Ondokuz Mayis University)
Yakup Kucukkale (Karadeniz Technical University)

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Abstract

The purpose of this study is to investigate whether current economic activities in Turkey have explanatory power over stock returns, or not. The data used in this study are monthly stock price indexes of Istanbul Stock Exchange and a set of macroeconomic variables, including money supply, exchange rate of US Dollar, trade balance, and the industrial production index. Engel-Granger and Johansen-Juselius co-integration tests and Granger Causality test were used in the study to explain the long-run relations among variables questioned. Obtained results illustrate that stock returns is co-integrated with a set of macroeconomic variables by providing a direct long-run equilibrium relation. However, the macroeconomic variables are not the leading indicators for the stock returns, because any causal relation from macroeconomic variables to the stock returns can not be determined in sample period. Contrarily, stock returns is the leading indicator for the macroeconomic performance for the Turkish case by supporting emerging market issues.

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Paper provided by EconWPA in its series Finance with number 0309010.

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Length: 8 pages
Date of creation: 13 Sep 2003
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Handle: RePEc:wpa:wuwpfi:0309010

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Related research
Keywords: Stock Returns Macroeconomic Performance Emergency Market Cointegration Causality

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Find related papers by JEL classification:
G0 - Financial Economics - - General
G1 - Financial Economics - - General Financial Markets

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  10. Gjerde, Oystein & Saettem, Frode, 1999. "Causal relations among stock returns and macroeconomic variables in a small, open economy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(1), pages 61-74, January. [Downloadable!] (restricted)
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  12. Kothari, S. P. & Shanken, Jay, 1992. "Stock return variation and expected dividends : A time-series and cross-sectional analysis," Journal of Financial Economics, Elsevier, vol. 31(2), pages 177-210, April. [Downloadable!] (restricted)
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