The Relationship between Investor Risk Appetite and Stock Market in the Framework of Behavioral Finance: A Sectoral Research in Borsa Istanbul

Abstract

The speed of investors' access to information shows a parallel development with the increasing technological developments, and this situation is important for investors to direct their current savings. In addition, many psychological and sociological factors can affect investors' risk perceptions and investment decisions. In this study, the relations between risk appetite and the stock market are examined on a sectoral basis. BIST Industrial Index (XUSIN), BIST Services Index (XUHIZ), BIST Financial Index (XUMAL) and BIST Technology Index (XUTEK), respectively, representing the industry, services, financial and technology sectors, which are among the sectors that make up a significant size of the Turkish economy, are included in the scope of the study. In the study, the risk perceptions of capital market investors were represented by the Risk Appetite Index (RISE). In the study, monthly data for the period of January 2010-June 2022 were used. In the study, the relationships between BIST sector indices and risk appetite were investigated using cointegration analysis, causality analysis, impulse-response analysis and variance decomposition analysis. As a result of cointegration analysis, while no cointegration relationship was found between RISE and XUTEK, statistically significant cointegration relationships were found between other sectors indices and RISE. As a result of the causality tests, while bi-directional causality relationships were detected between RISE and, XUSIN and XUMAL indices, a one-way causality relationship was found between RISE and XUHIZ, which is from XUHIZ to RISE. As a result of the analysis, no causal relationship was found between RISE and XUTEK. Findings supporting the results of causality tests were obtained as a result of impulse-response analysis and variance decomposition analysis. As a result of the analysis, it has been determined that the changes in the stock values of the companies operating in the industrial, service and financial sectors shape the investor risk appetite, and the changes in the risk appetite cause changes in the stock values of the companies operating in the industrial and financial sectors. On the other hand, there is no significant relationship between the stock values of companies operating in the technology sector and investor risk appetite.