Empirical Economics Letters, vol.9, pp.1-7, 2010 (Peer-Reviewed Journal)
This paper investigates the relationship between economic growth and stock returns accounting for the interest rates and inflation in Turkey between 1997:1 and 2008:6. The Toda-Yamamoto procedure is used to test long run Granger causality between real stock returns, real activity, and interest rates. Empirical results show that over the period we study causality running from stock returns to real growth and from interest rates to real growth. After the 2001 crisis the link between real growth and real stock returns disappears completely. Hence, financial crisis seems to sever the link between stock market and the macroeconomy.