Efficiency of the Major Borsa Istanbul Indexes: An Empirical Investigation about the Interaction between Corporate Governance and Equity Prices Through a Market Model Approach

Abstract

This paper is intended to argue the connection between corporate governance quality and stock returns and aimed to present a slightly different approach to capturing relationship between the fundamental stock market indexes and corporate governance in Turkey by relating the major index returns to the corporate governance index returns through a simple market model. Moreover, it is also aimed to compare relative efficiencies of the market portfolios included to one another according to their reactional behaviors against the corporate governance index. For this purpose, three market indexes in Borsa Istanbul, namely BIST 30, BIST 100 and BIST ALL as well as the Corporate Governance Index (CGI) have been considered and analyzed. The returns on each of these three market indexes are regressed on the returns of the corporate governance index through the Ordinary Least Squares (OLS) and Multivariate Adaptive Regression Splines (MARS) techniques. Our findings suggest that the market index returns are positively correlated with the corporate governance index returns and provide some evidence supporting the conclusion that the BIST 100 index can be considered to be relatively efficient as compared to BIST 30 and BIST ALL.