Examining the Causality between Financial Instruments in Terms of Portfolio Management

Abstract

In portfolio theory, the selection of financial instruments to be included in the portfolio is of great importance. For this purpose, the direction and strength of the relationship between the financial instruments to be included in the portfolio have also become important. From this point of view, the main objective of this study is to analyze the interrelationships among financial instruments. In this study, the causality relationship between gold, BIST-100 index, bitcoin and exchange rate was analyzed. The data of the financial instruments used in the study consist of 208 observations as weekly values for the years 2019-2022. Before applying causality analysis, Johensen cointegration test was performed to test whether there is a cointegration relationship between the variables. According to the results of the cointegration test, both the trace statistic and the maximum eigenvalue result indicate that there is one cointegration between the variables. According to the Toda-Yamamoto causality test, it was concluded that there is a bidirectional causality relationship between the exchange rate and bitcoin price and that the exchange rate is the cause of the BIST-100 index.