Abstract

Stock market has been associated with economic growth through its role as source for new private capital.  On the other hand, economic growth may be the catalyst for stock market growth. Thus, the purpose of this paper was to explore causal relationships between stock market and the economy using formal tests of causality developed by C. J. Granger and yearly Malaysia data for the period 1977-2006. Results show that stock market Granger-caused economic activity with no reverse causality observed. The longest significant lag length observed from the results was two years.

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