The Impact of Trading Volume, Exchange Rate on Istanbul Index Price: Empirical Results Using ARDL Model

Abstract

This study aimed to investigate the relationship and the effect of the change in the trading volume and the exchange rate of the Turkish lira on the closing price of the Istanbul 100 Index. Therefore, weekly data were collected for the index, trade volume and exchange rate for the period 2016-2021. After that, we run diagnostic test to ensure that our data fit the necessarily robust characteristics. Thus, we used the unit root test and conclude that the dependent variable is stationary after first difference and other variables are stationary at level and after first difference. Afterwards, we checked that the residuals are fitting our main condition where it should be serially uncorrelated with homogenous slope. The ARDL has been used to explore the short and long run relationship and interaction between variables. First, we reported the bound test results and the F-state showed to be significant at 1%, which is mean that our model has a long-run interaction with the dependent variable. Secondly, we run the long-run ARDL test to check the impact of each independent variable on the dependent variable. The results showed that the exchange rate has statistically significant effect on the index price. The results showed that the exchange rate of the Turkish lira against the dollar negatively affected the price of the Istanbul Stock Exchange index. While, the trading volume was insignificant in the long-run. However, the results of short run cointegration is different. The current and lagged value of trading volume were significant. Finally, we tested the stability of our model. The results were different between CUSUM and CUSUMSQ. Where they CUSUM results came up to show the stability of coefficient in the model. Nevertheless, the CUSUMSQ showed that we have unexpected change in the structure