Examine the Relationship Between Stock Market and Economic Growth

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Azizi, Masoumeh | 2014

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 45466 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Zamani, Shiva; Nili, Masoud
Abstract:
Stock market index is an indicator for the general level of prices of the listed companies in a stock market. If stock price index correctly reflects the future behavior of fundamental variables, then as a leading indicator it could predict the booms and boasts in economic activites.
The main question of this thesis is “whether the stock market is a leading indicator for economic growth in Iran?” To answer this question, we use the data of the Stock market price index and GDP in Iran, from 1991:1 to 2012:4. By an OLS regression and a VAR model, we show that the real return of stock market leads GDP growth, and the market cycle leads the business cycle. We use impulse response function, and analysis of variance to test our results. To check whether the results depend on a specific sample period, we divide the total sample into two subsamples, which cover the time periods 1991:1 to 1997:4 and 1998:1 to 2012:4, and repeat the same work in these subsamples.
The results show that the real return of stock market and market cycle are leading indicators for GDP growth and business cycle but, the results depend on subsamples
Keywords:
Stock Return ; Leading Indicator ; Real Activities ; Market Cycle

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