Stock market and economic growth: The casality analysis

Especially in recent years with the increasing effectiveness of stock market on the economy the causality relationship between stock market and economic growth has become a subject which has been attracted by economists. The causality analysis between stock market and economic growth began with Levine and Zervos (1996) at the end of 1990?s continued with the study of Cheung ve Ng (1998), Mohtadi ve Agarwal (2001) and Frimpong (2008). In the literature although there has been a wide range of research investigating the causal relationship between stock market and economic growth for Turkey, it is clear that all studies focused aggregated data in their analysis. Granger (1987, 1988b), Pesaran et al. (1989), Gulasekaran (2002) and Granger and Siklos (1995) argue that aggregated data may exhibit different results from those found in the disaggregated data analysis and these results would not be healthy. The purpose of this study is to analyse the existence of causality relationship between stock market and economic growth on the basis of both aggregated and disaggregated data for Turkey period of 1997-2012 using Engle-Granger Cointegration Test and Causality Test. The result of this study indicated that there is a unidirectional causality between stock market and economic growth with direction from economic growth to stock market for aggregated data and industry sector, for service sector there is a bidirectional causality between stock market and economic growth. Key Words: Turkey, Stock Market, Economic Growth, Cointegration, Causality.