Abstract
This paper empirically investigated the dynamic relationship between Turkish stock market and macroeconomic variables, for the period span from January 2002 to December 2013. Specifically, we examined the effect of monetary policy changes during the tested period. Dummy variables were added to the model in order to overcome the effect of inflation rate targeting and exchange rate regime change in Turkey. Using VAR model, the result revealed that long-run relationship between share price index and the tested macroeconomic variables index of industrial production (IIP) Short-term interest rate (SINT), money supply (M2), and exchange rate (EXC), was maintained. Moreover, the findings from error correction term coefficient indicated that Turkish stock market adjusted its previous disequilibrium (due to positive or negative shocks) in one period at an adjustment speed of 4.449 percent monthly.
Highlights
Researchers and policymakers have paid a considerable attention to investigate the linkage between stock prices and macroeconomic variables
The aim of this study is to provide empirical evidence and to elucidate the dynamic relationship between the whole Turkish stock price index and macroeconomic variables, for a wiser time span from January 2002 to December 2013
The findings reveal that the long-run relationship between the whole Turkish stock price index and macroeconomic variables namely: (Short-term interest rate (SINT), money supply (M2), exchange rate (EXC), and index of industrial production (IIP) as a proxy of economic activity) is maintained
Summary
Researchers and policymakers have paid a considerable attention to investigate the linkage between stock prices and macroeconomic variables. Journal of Financial Studies & Research through different models. The above mentioned models explain the anticipated and unanticipated of any new information that is related to macroeconomic variables. They might have an effect on stock prices from their impact on discount rate or the expected future dividends
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