Abstract
This study analyses the impact of interest rate changes and past volatility on sector index returns in Borsa Istanbul using a GARCH(1,1) model. The results show that interest rate changes negatively affect sector returns, including banking, food, holdings, tourism, services, transportation, financial, industrial, and technology. Furthermore, the GARCH(1,1) model indicates persistence in volatility in sectors like banking, holdings, transportation, financial, industrial, and technology, where past volatility strongly influences future volatility. Conversely, sectors such as food, tourism, and services exhibit less volatility persistence, suggesting more stable returns during interest rate fluctuations. The GARCH (1,1) specification outperforms the ARCH model by capturing the persistence of variance, making it a more reliable measure for sectoral volatility. The results align with previous research, mainly on the sensitivity of financial sectors to interest rate changes and market volatility. This study's unique contribution lies in its focus on BIST 100 sectors, offering valuable insights for investors to optimise asset allocation. By understanding sector-specific sensitivities to interest rate changes and volatility, investors can make informed decisions to enhance returns.
Published Version
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