Validity of the Arbitrage Pricing Theory in Turkey’s economy: An empirical analysis in the context of global economic crisis

Abstract

In this study, validity of the Arbitrage Pricing Theory in Turkey's economy is investigated with two separate analyzes for the period of 2002-2008 and 2008-2019. In the study, gold prices, time deposit interest rates, exchange rate, Central Bank Leading Indicators Index and VIX fear index data which are considered to affect the returns of securities (Stock Exchange) are used. Stationarity of the series is tested by ADF unit root test and the series are determined to be stationary at different levels. The cointegration of the series in the model is examined by Bounds Testing method and it is seen that the series are cointegrated. The regression analysis is performed by ARDL method and it is determined that gold is the substitute of BIST 100 just in the short term between 2002 and 2008, while foreign exchange is substitute of it both in the long and short term in the two periods. Moreover, the time deposit interest rates are substitutes of BIST 100 in the long term between 2002 and 2008. It is also found that the time deposit interest rates during the period of 2008-2019, similar to economic conjuncture in the country in the 2002-2019 periods, have a supportive effect on BIST 100 index in the long term. It is observed that the increases in financial fear level (VIX) negatively influence BIST 100 index returns in the post-2008 period. Error correction mechanisms of the models operate.