Is Equity Market Efficient? Evidence from a Small Open Economy

  •  Taylan Dogan    
  •  Emre Aksoy    


This study investigates relationships between macroeconomic variables and stock market over the period of 1987Q1-2012Q1 for Turkey. The study is conducted by evaluating 2001 crisis, the most severe crisis in the history of Turkey which caused a cyclical shift, which has not been in consideration by the previous literature. This study used Toda and Yamamoto (1995) method to uncover those relationships. Here, those investigations provide information on whether Turkish stock market is efficient or not and whether the stock market can be used as a leading indicator for one or more fundamental macroeconomic variables. The results indicated that 2001 crisis had statistically significant impact on the stock market and Turkish economy. Before 2001 crisis, the stock market was not efficient but after 2001 crisis the stock market became efficient. The stock market was also found as a leading indicator for the real economic activity that is consistent with the literature findings on Turkey.

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