Stock market indices and economic growth

Abstract

This thesis explores the dynamic relationships between the major stock market indices and Gross Domestic Product (GDP) growth. The study focuses on the examples of Germany and Greece. GDP represents the collective monetary or market worth of all finalized goods and services produced within an economy during a particular timeframe, typically a calendar year. GDP serves as a performance indicator of a country's overall domestic output, and is essentially an extensive assessment of the economic well-being of the economy. This study systematically analyzes the temporal dependencies within these relationships, employing univariate linear regression analysis using indices such as Dow Jones (^DJI), S&P 500 (^GSPC), Nasdaq 100 (^NDX), and Russell 2000 (^RUT) as main determinants. The study covers multiple lagged periods that range from one quarter to two years. The research methodology employs Ordinary Least Squares (OLS) regressions, followed by out-of-sample testing of the suggested models. The outcomes illuminate the nuanced interplay between index movements and economic performance of Germany and Greece, offering valuable insights into the temporal dynamics shaping these intricate relationships.