Abstract:

paThe aim of the paper is to investigate the relation between the stock exchange index levels and different macroeconomic indicators and to document the predictive power that some of the macroeconomic indicators might have for the future trends of the stock exchange index. Because the stock market is a leading indicator of economic activity, reflecting the investor’s expectations about the future economic conditions in the country, a possible predictive model of the stock market index is a great tool that can be used both by investors looking to maximize their returns while minimizing risk and also by government agencies in monitory policy regarding financial markets. The paper will document the specification and estimation of an econometric model of the Bucharest Stock Exchange Index using a GARCH (1.1) model and quarterly data spanning for 15 years from September 1997 to December 2012.