ABSTRACT
This chapter focuses on the stock market-macroeconomic nexus, covering three major aspects. Firstly, to determine whether stock return is a leading indicator for future real economic activity. Secondly, recent developments in econometrics on time series properties enable researchers to investigate the relationship of various integrated economic variables easily, providing precise estimates. Finally, majority of the studies relating to money supply measurement normally would employ the traditional simple-sum aggregate. In Malaysia, certain quarters of the population perceive that the improvement in the performance of the stock markets will results in improvement of the economy; measured by the positive growth in the gross national product. The chapter describes the quarterly data series for six macroeconomic variables for the period 1981:1 to 1994:4. It includes five important macroeconomic variables are as follows: broad divisia money supply M2, nominal income, price level, interest rate and the exchange rate.
