In developed market economies, the stock market is seen as a leading indicator of economic activity because stock prices are based on expected future earnings. However, the predictive ability of the stock market has been questioned, in part because of many false signals, as reflected in the popular saying "the stock market has predicted eight of the last five recessions" and in part because, in less developed countries, the relationship between market movements and future economic activity seems weaker than in developed market economies. In the first paper in this issue, Stefan Lydcsa, Eduard Baumohl, and Tomas Vyrost examine this relationship for four posttransition economies, the Czech Republic, Hungary, Poland, and Slovakia. Despite relatively short time spans for their observations, the authors confirm that the markets do predict future macroeconomic performance in the Czech Republic and Poland, but in the Hungarian market, the results are less clear, and Slovakia's stock market is seen as too thin, too undercapitalized, and insufficiently representative of the country's economic profile to serve as a good leading indicator. Overall, this paper adds to an interesting literature on the role of stock markets as leading indicators.
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