IS THE STOCK MARKET A BAROMETER OF THE ECONOMY? THE CAUSALITY RELATIONSHIP BETWEEN ECONOMIC ACTIVITY AND STOCK PRICES IN TURKEY

The relationship between the economy and the stock market has long been an important subject of economic research. The observed relationship between the fluctuations in stock prices and economic activity has led to a widespread view that the stock market is a barometer of the economy. This view is tested in this study. In the study, the causality relationship between economic activity and stock prices in Turkey is investigated using quartely data for the period 2000-2016. Toda-Yamamoto causality test is used in the empirical analysis. The results of the causality tests show that there is unidirectional causality running from stock prices to economic activity in Turkey. This is a result supporting the view that the stock market is a barometer of the economy