An investigation of the short- and long-term relationships between Turkish financial markets∗

Abstract

In recent years the importance of emerging stock exchanges has been demonstrated by the number of market studies. Although some of these stock exchanges such as those of Korea and Taiwan have been investigated extensively, there is only limited research on others including the Turkish stock exchange. This study aims to fill this gap by investigating the short- and long-term relationship between Turkish stock prices, and the Turkish lira price of the US dollar. Turkish investors view both of these instruments as investments. The exchange offices in Turkey serve investors who continuously buy and sell foreign currencies. We expect that at least one market would cause the other one, and there could be a feedback relation or in the extreme case, there could even be long-run equilibrium between these two markets. Data for this study are obtained from a foreign exchange office and the Istanbul Stock Exchange for the period January 1988 to December 1994. The data consist of daily closing prices of the Istanbul S...