THE RELATIONSHIP BETWEEN THE STOCK MARKET AND THE ECONOMY: EVIDENCE FROM CENTRAL AND EASTERN EUROPEAN COUNTRIES

Capital markets in the market economy are subject to constant changes. Currently, available technology enables transactions on many stock exchanges. Thanks to this it can be recognized that national capital markets together create one global market Looking at the national capital markets as a single global market, the question arises as to how much they are still a picture of the condition of the national economy, and to what extent they are the form of the functioning of the national economy where the economic situation depends on the global economic situation. Bearing this in mind, the purpose of the paper was to determine the impact of the German DAX exchange index on the stock exchange indices of the Central and Eastern European countries, and to what extent it is an image of the country's economic activity measured by GDP. The research was carried out on the data from 2010-2018. In the assessment of the correlation of stock exchange indices of Central and Eastern European countries, correlation and ARDL models were used together with tools related to these models, while the links between stock exchange indices and GDP were examined using correlation and causality tests. The results obtained are not conclusive. One may incline to the acknowledgement that the DAX index in the short term actually has a significant impact on the indices of the Central and Eastern European countries, but in the long-term, they are still related to economic activity measured by GDP. The detailed analyses show quite significant differences between the assessed countries, which may be caused by the importance of the German economy in shaping the economies of the countries studied, but also the specificity of local markets, where small local markets, due to limited interests, can develop independently of the economic situation on large markets.