THE EFFECT OF ECONOMIC GROWTH ON STOCK EXCHANGE

Abstract

Economic growth measures growth in economic activities. Economic growth is important for countries, because it often brings better economic and social standards. Stock exchange performance is often a good indicator of the economy since it shows the performance of some of the important companies in the economy. The empirical analysis in this article aims to investigate the relationship between economic growth and stock exchange performance. Percentage change in GDP of Turkey and BIST100 are used as variables for this purpose. Two different data sets; 2003-2022 and 2013-2022 are available in the research. The analysis include error correction model, vector auto regression, Granger causality, impulse response, and variance decomposition. For the period 2013-2022, cointegration long run relationship is determined but there is no short run relationship as explained by error correction model. 30% of changes in economic growth can be explained by stock exchange performance and only 5% of changes in stock exchange performance can be explained by economic growth. BIST100 Granger causes economic growth. For the period 2003-2022, both short run and long run relationships are detected. Shocks in the long run disappear by 24%. The results indicate that the stock exchange performance can be used as an indicator of economic growth. Works in the literature also show significant relationship between stock markets and GDP both in local and international studies. The findings have important academic, policy and practical implications.