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2007•RePEc: Research Papers in EconomicsRequires access

Cointegration and Causality Between Macroeconomic Variables and Share Prices

Ömer Yılmaz, Bener Güngör, Vedat Kaya

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Abstract

The aim of this study is to investigate whether there is a relationship between some macroeconomic variables and share prices. In the analysis, covering the period of 1990: 01-2003: 12, variables of Istanbul Stock Exchange index, consumer price index, money supply, interest rate, exchange rate, trade balance, and industrial production index were used. Least squares estimation method, Johansen-Jeselius cointegration test, Granger causality test and variance decomposition results produced by VEC model were used in the study. These analysis shows that there is a long run relationship between some macroeconomic variables and share prices.

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What this paper is about

The aim of this study is to investigate whether there is a relationship between some macroeconomic variables and share prices. In the analysis, covering the period of 1990: 01-2003: 12, variables of Istanbul Stock Exchange index, consumer price index, money supply, interest rate, exchange rate, trade balance, and industrial production index were used. Least squares estimation method, Johansen-Jeselius cointegration test, Granger causality test and variance decomposition results produced by VEC model were used in the study. These analysis shows that there is a long run relationship between some macroeconomic variables and share prices.

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Available abstract

The aim of this study is to investigate whether there is a relationship between some macroeconomic variables and share prices. In the analysis, covering the period of 1990: 01-2003: 12, variables of Istanbul Stock Exchange index, consumer price index, money supply, interest rate, exchange rate, trade balance, and industrial production index were used. Least squares estimation method, Johansen-Jeselius cointegration test, Granger causality test and variance decomposition results produced by VEC model were used in the study. These analysis shows that there is a long run relationship between some macroeconomic variables and share prices.

Key concepts: Economics, Cointegration, Econometrics, Variance decomposition of forecast errors, Exchange rate, Granger causality, Johansen test, Index (typography)

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