Impact of Macroeconomic Factors on Stock Market: Evidence from Istanbul Stock Exchange

In contemporary economic world, financial markets in general and stock markets in particular play a vital role in financing the investments and to extent credit to the entrepreneurs. This fact has opened a new avenue of research into the relationship between stock market and macroeconomic structure that is development/reaction/impact of stock market across macroeconomic fluctuations. This paper analyzes long-term equilibrium relationship between macroeconomic factors and Istanbul Stock Exchange (ISE) Index. The macroeconomic factors are represented by a set of variables which include interest rate, inflation (consumer price index), industrial production index, money supply (M1), growth (GDP) and real exchange rate. We employ Johansen co-integration method to explore the above mentioned relationship among these variables in a span of time between 1998:1 and 2008:12