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Causality between stock price and GDP in Turkey: An ARDL Bounds Testing Approach

Author

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  • Turgut Tursoy

    (Near East University, North Cyprus Mersin 10 Turkey)

  • Faisal FAISAL

    (Near East University, North Cyprus Mersin 10 Turkey)

Abstract

The study investigates the dynamic relationship between stock prices and GDP in Turkey using quarterly data from 1989Q2-2014Q2. The study investigated the interrelationship between the variables via auto regressive distributive lag (ARDL) framework and ECM to analyse the existence of a long-run equilibrium relationship between gross domestic product and stock prices. The results provide strong evidence that both the stock prices and GDP are strongly cointegrated in the long-run. The empirical estimation indicated a significantly positive relationship between GDP and stock prices. The robustness of the ARDL model was confirmed by using Johansen and Juselius’s cointegration test (1990). The Granger causality test results indicate a long-run bidirectional causality between stock prices and GDP, and also a uni-directional causality from GDP to stock prices in the short-run. Both the stock prices and the economic growth are directly linked with each other. The reliability and validity of our estimations are confirmed by the diagnostics and the CUSUM test.

Suggested Citation

  • Turgut Tursoy & Faisal FAISAL, 2016. "Causality between stock price and GDP in Turkey: An ARDL Bounds Testing Approach," Romanian Statistical Review, Romanian Statistical Review, vol. 64(4), pages 3-19, December.
    • Handle: RePEc:rsr:journl:v:64:y:2016:i:4:p:3-19
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    References listed on IDEAS

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    Cited by:

    1. Turgut Tursoy, 2019. "The interaction between stock prices and interest rates in Turkey: empirical evidence from ARDL bounds test cointegration," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-12, December.
    2. Faisal Faisal & Ruqiya Pervaiz & Nesrin Ozatac & Turgut Tursoy, 2021. "Exploring the relationship between carbon dioxide emissions, urbanisation and financial deepening for Turkey using the symmetric and asymmetric causality approaches," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(12), pages 17374-17402, December.
    3. Tursoy, Turgut, 2018. "Risk management process in banking industry," MPRA Paper 86427, University Library of Munich, Germany.
    4. Tursoy, Turgut & Faisal, Faisal & Berk, Niyazi & Shahbaz, Muhammad, 2018. "How do Stock Prices and Metal Prices Contribute to Economic Activity in Turkey? The Importance of Linear and Non-linear ARDL," MPRA Paper 88899, University Library of Munich, Germany.
    5. Abdullah, Hariem & Tursoy, Turgut, 2021. "Capital structure and firm performance: a panel causality test," MPRA Paper 105871, University Library of Munich, Germany.
    6. Toan Ngoc Bui, 2020. "Financial Depth and the Real Estate Market: An Empirical Study of the Wealth Effect," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(8), pages 936-945, August.

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    More about this item

    Keywords

    ARDL Model; Granger Causality; GDP; Stock price;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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