The Stock Market as a Leading Macroeconomic Indicator

Abstract: This article goes on to explain and seek if there is any predictive power in the stock markets toward GDP. Put in other words, this study examines whether or not the stock market can be seen as a leading indicator toward GDP for the ten biggest economies measured by GDP in the year 2020. What can be concluded from the results discussed in the analysis section is that the best predictability is when the stock market leads GDP with three to five quarters. In earlier studies on the same topic, the same results can be concluded. However, these previous studies have all shown an extended predictive period between one and five quarters, compared to our results which showed three to five quarters. One note worth mentioning is that we obtained contradictory results depending on if the tests were implemented for each country individually through time series data analysis, or collectively through panel data analysis. Our conclusion was drawn with the panel data analysis as the underlying truth, as it is viewed as more efficient and informative while also being a more suitable tool for studying the dynamics of change.