Author(s): Hikmet AKYOL, Kübra KARAKUŞ

Since the nineteenth century, the relationship between financial development and economic growth has been debated. Today, stock markets constitute one of the most important indicators of financial development.Stock markets are very useful tools for investors, economic policy makers and researchers to easily and effectively see the effects of factors such as expansion, contraction and shocks in the macroeconomic structure.Therefore, the relationship between stock returns and macroeconomic structure is a subject of intense research. Real activity is one of the macroeconomic variables associated with stock returns.In this research, the relationship between stock returns and real activity has been studied in theoretical and empirical terms. For this purpose, the 2007-06 and 2019-06 periods of Turkey were analyzed using Engle-Granger (1987), DOLS and FMOLS estimators.At the same time, the causality relationship between variables was predicted by the Toda-Yamamoto (1995) Test.According to the results of the analysis, the demand-following hypothesis is valid in terms of the relationship between stock returns (financial development) and real activity (economic growth) in Turkey. Accordingly, economic growth in Turkey is the cause of financial development.According to Toda-Yamamoto (1995), there is bidirectional causality between variables.


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