This study examines the short-run dynamic interactions between the Swedish stock market

index (SPI), Sweden’s gross domestic product (SWE_GDP), Germany’s gross domestic

product (GER_GDP), and Sweden’s Economic Policy Uncertainty (EPU) index over the period

1993Q1 to 2024Q4, using a Vector Autoregressive (VAR) model. The aim is to assess whether

these macroeconomic and policy-related variables help predict stock market movements in

Sweden. Granger causality tests reveal strong autoregressive behavior in the SPI, while no

significant evidence is found that SWE_GDP, GER_GDP, or the EPU index Granger-cause the

SPI. A unidirectional Granger-causal relationship is identified from GER_GDP to Sweden’s

EPU index, indicating the influence of external economic developments on domestic

uncertainty. The results suggest that traditional macroeconomic indicators and policy

uncertainty have limited predictive power for stock prices in Sweden within a linear VAR

framework. These findings contribute to the literature on stock market predictability in small

open economies and suggest potential avenues for further research using structural or nonlinear

models.