The Relationship between Stock Market and Macroeconomic Variables: a Case Study for Iran

This paper examines the causal relationship between stockprices and macroeconomic aggregates in iran, by applying thetechniques ofthe long-ron granger non-causalitytest proposedby toda and yamamoto (1995). we test the causalrelationships between the tepix index and the threemacroeconomic variables: money supply, value of tradebalance, and industrial. production using quarterly data for theperiod 1372:.1 to 1383:4. the results show unidirectional longrun causality from macroeconomic variables to stock market.accordingly, the stock prices are not a leading indicator foreconomic variables, which is inconsistent with the previousfindings that the stock market rationally signals changes in realactivities. contrarily, the macro variables seem to lead stockprices. so, tehran stock exchange (tse) is not informationallyefficient.