Dependency and Predictability of Stock Market Returns. An Empirical Study of German Capital Market
Dependency and Predictability of Stock Market Returns. An Empirical Study of German Capital Market

Summary/Abstract: The paper examines the predictability of German stock market, and provides evidence that several economic factors have predictive power for the market return. The basic idea is that German stock market development is determining and enormously significant factor for the Visegrad Group countries because of their vital dependency on the German economy, where development in the stock market is a significant parameter of the state of the economy. Going out from this perspective we present an overview on current research on the stock market predictability, we formulate a research problem and using time series models as well as linear regression models we estimate and in detail describe important parameters of the German stock market development. We came to conclusion that four macroeconomic variables are specifically important and significant for the development of German stock market index DAX, namely Euro Area government bonds with AAA rating, German net trade in goods with all the countries of the world, net financial assets of German households and non- profit organizations serving households, and the exchange rate for Russian ruble to Euro.

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