Dependence of Gross Domestic Product on Development of the Stock Market. The Czech Republic Case

Abstract

Purpose of the article: This paper deals with the dependence of the gross domestic product of the Czech Republic based on the development of stock markets. Author aim is to present the development of the Prague’s, Frankfurt’s and New York’s index and their comparison with the development of the Czech economy by regression analysis. Scientific aim: The main scientific goal of this paper is to answer following questions: Which one of the above-mentioned indices is the best to determine the direction of future development of the Czech economy? How early advance is possible to predict the development of GDP and with what reliability? Methodology/methods: The correlation analysis for all stated indicators was used to determine the dependance of the Czech economy. For domestic indicators are used quarterly data. For foreign indicators are used annual data. The choice of foreign stock exchanges and their indexes was not random. Frankfurt was chosen due to high exports of the Czech Republic to Germany. New York was chosen due to the capitalisation of stock market. The specific index NYSE (Dow Jones EURO STOXX 50) was chosen due to its portfolio, which is based only on companies that are resident in the euro area. Findings: GDP of the Czech Republic is mainly based on the index of the Prague Stock Exchange. Trend of GDP develops according to PX, with a delay of five quarters. Despite the fact that the PSE is not highly developed capital market, like the other two. Conclusions: Economy of the Czech Republic depends on the development of stock markets. The reaction to stock market development is not always visible, but the delay about five quarters became evident. This result is also supported by the research mentioned by Kislingerova (2001) in her book.