STOCK MARKET ACTIVITY AND THE MACROECONOMY : THE CASE OF SINGAPORE

Abstract

Much studies have been focused on the importance and relevance of the predictive power of the stock market activity on the macro economy. The conventional belief is that movements in the stock market indices lead movements in real economic activity. The prime objective of this exercise is to investigate whether the relationship between stock market indices, such as the stock market returns and stock dispersion index, and macroeconomic variables holds for the case of Singapore. The results of this study show that, over the period January 1975 to March 1990, the stock market dispersion index and stock market returns lead the movements in the macroeconomic variables. In particular, these indices lead gross domestic product growth by one quarter. Further, we also observe that stock market activity Granger causes the fluctuations of real GDP growth and the causation is not a feedback.