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

Turgut Türsoy and Faisal Faisal

Romanian Statistical Review, 2016, vol. 64, issue 4, 3-19

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.

Keywords: ARDL Model; Granger Causality; GDP; Stock price (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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