Predictive Power Stock Market IndicesFor The Future Economic Activity,In The Frequency Domain

Subject Areas : مدیریت

Amir Mohammad zadeh ¹ , Parisa Karim khani ²

1 - Assistant Professor, Department of Management, Qazvin Branch, Islamic Azad University, Qazvin, Iran
2 - M.Sc. Student, Department of Management, Qazvin Branch, Islamic Azad University, Qazvin, Iran.

Received: 2017-10-23 Accepted : 2017-10-23 Published : 2017-02-19

Keywords: "Granger causality", "VAR model", "Frequency domain", "GDP", " Stock market index",

Abstract :

Financial markets are among the influential markets in the economy of every country. Stock market booms and crashes in some countries not only influence their national economies but also have impacts on the global economy. Study of performance of stock market and stock price index and their effects on economic factors are among issues increasingly being focused by economic and financial researchers.Up to now many studies has been conducted on the causal relationship between stock market indices and economic variables in various countries. These causal relationships have confirmed in some studies and they have rejected in other ones. The innovation of present research is study of Granger causality in frequency domain about which there are no comprehensive studies especially in Iranian context. Present study addresses the causal relationship between gross domestic product (GDP) and stock market variables including stock price index, financial index and industry index in Iranian context and explores if predictive power is concentrated on lower frequencies or higher ones. Main goal of present study is to employ stock market indices to develop a model for prediction of GDP. Results from present study showed that in Iranian context there was no causal relationship between GDP and selected variables related to stock market in frequency domain and stock market indices cannot be used to predict GDP.