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The Stock Markets and Real Economic Activity


  • Stefan Lyocsa
  • Eduard Baumohl
  • Tomas Vyrost


The goal of this paper is to provide new evidence on the bidirectional relationships between economic activity indicators and stock market returns in four Central and Eastern European (CEE) countries: Poland, the Czech Republic, Hungary, and Slovakia. Using the single equation error correction model (SEECM) framework of cointegration analysis, the Engle-Granger two-step procedure, single-equation Granger causality tests, and the Toda-Yamamoto (1995) approach, this paper presents results for the Czech Republic, Poland, and Hungary that are generally in accordance with the present value theory of stock prices. Thus, the stock market indexes for these countries are leading indicators of the state of the real economy. However, as explained here, the results for Hungary must be interpreted with greater caution. In addition, as was expected, the results for Slovakia were very different from those of the other countries.

Suggested Citation

  • Stefan Lyocsa & Eduard Baumohl & Tomas Vyrost, 2011. "The Stock Markets and Real Economic Activity," Eastern European Economics, Taylor & Francis Journals, vol. 49(4), pages 6-23, July.
  • Handle: RePEc:mes:eaeuec:v:49:y:2011:i:4:p:6-23

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    Cited by:

    1. Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "Unit-root and stationarity testing with empirical application on industrial production of CEE-4 countries," MPRA Paper 29648, University Library of Munich, Germany.
    2. Małgorzata Iwanicz-Drozdowska & Paola Bongini & Paweł Smaga & Bartosz Witkowski, 2019. "The role of banks in CESEE countries: exploring non-standard determinants of economic growth," Post-Communist Economies, Taylor & Francis Journals, vol. 31(3), pages 349-382, May.
    3. Lyócsa, Štefan, 2014. "Growth-returns nexus: Evidence from three Central and Eastern European countries," Economic Modelling, Elsevier, vol. 42(C), pages 343-355.
    4. Ülkü, Numan & Kuruppuarachchi, Duminda & Kuzmicheva, Olga, 2017. "Stock market's response to real output shocks in Eastern European frontier markets: A VARwAL model," Emerging Markets Review, Elsevier, vol. 33(C), pages 140-154.
    5. Baumöhl, Eduard, 2013. "Stock market integration between the CEE-4 and the G7 markets: Asymmetric DCC and smooth transition approach," MPRA Paper 43834, University Library of Munich, Germany.

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