Stock Market Informational Efficiency in Germany: Granger Causality between DAX and Selected Macroeconomic Indicators

This study analyzes relationship between macroeconomic indicators and stock market in Germany. Aim of this paper is to answer the question how stock market reflects economic conditions and if stock market is informational efficient. Toda-Yamamoto (1995) approach is used for testing Granger causality. Bivariate analysis is performed on monthly data from January 1999 to September 2015, and six macroeconomic indicators are examined: industrial production, inflation, money supply, interest rate, trade balance and exchange rate. Analysis applies unit root tests, testing for cointegration using the Johansen methodology and Wald test for linear restriction to check Granger causality.