Stock returns and economic activity in nature and emerging countries

Abstract

This paper empirically investigates the potential existence and strength of unidirectional or bi-directional relations stemming from the aspects of economic activity to stock returns and those that are produced from the opposite direction both in mature and emerging countries. We applied a multivariate VAR model and we performed Granger causality tests. Both quarterly and monthly (availability concerning) data were used, covering the period January 1980-December 2012. The economic activity was presented through a variety of variables such as GDP growth, industrial production growth, government consumption, private consumption, market value growth and inflation. The existence of an empirical relationship with forecasting extensions is confirmed in some economic activity presenting variables, but the magnitude of the results is differentiated between mature and emerging countries.