IDEAS home Printed from https://ideas.repec.org/a/bor/iserev/v8y2006i32p1-10.html
   My bibliography  Save this article

The Relationship Between Macroeconomic Volatility and Stock Market Volatility

Author

Listed:
  • Saadet Kirbas Kasman

Abstract

This paper attempts to determine the relationship between conditional stock market volatility and macroeconomic volatility using monthly data for Turkey from 1986 to 2003. The macroeconomic variables used include industrial production, the money supply M1, inflation, an exchange rate variable, namely Turkish Lira / US Dollar and oil prices. Conditional monthly volatility is measured from GARCH estimations. The results show that volatility of money supply has a strong predictive power for stock market volatility while stock market volatility has a predictive power for exchange rates and inflation volatility. Tests of joint and simultaneous explanatory power of macroeconomic volatilities indicate that only volatility of industrial production and exchange rates have significant effect on stock market volatility and 6% of the changes in aggregate stock volatility might be related to macroeconomic volatility.

Suggested Citation

  • Saadet Kirbas Kasman, 2006. "The Relationship Between Macroeconomic Volatility and Stock Market Volatility," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 8(32), pages 1-10.
    • Handle: RePEc:bor:iserev:v:8:y:2006:i:32:p:1-10
    as

    Download full text from publisher

    File URL: http://www.borsaistanbul.com/datum/imkbdergi/EN/ISE_Review_32.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert Johnson & Luc Soenen, 2002. "Asian Economic Integration and Stock Market Comovement," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(1), pages 141-157, March.
    2. Aggarwal, Reena & Inclan, Carla & Leal, Ricardo, 1999. "Volatility in Emerging Stock Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(1), pages 33-55, March.
    3. Fernandez-Serrano, Jose L. & Sosvilla-Rivero, Simon, 2001. "Modelling evolving long-run relationships: the linkages between stock markets in Asia," Japan and the World Economy, Elsevier, vol. 13(2), pages 145-160, April.
    4. DeFusco, Richard A & Geppert, John M & Tsetsekos, George P, 1996. "Long-Run Diversification Potential in Emerging Stock Markets," The Financial Review, Eastern Finance Association, vol. 31(2), pages 343-363, May.
    5. Chung, Pin J. & Liu, Donald J., 1994. "Common stochastic trends in pacific rim stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 34(3), pages 241-259.
    6. Angelos Kanas, 1999. "A note on the long-run benefits from international equity diversification for a UK investor diversifying in the US equity market," Applied Economics Letters, Taylor & Francis Journals, vol. 6(1), pages 49-53.
    7. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
    8. Yochanan Shachmurove, "undated". ""Dynamic Daily Returns Among Latin Americans and Other Major World Stock Markets''," CARESS Working Papres 96-03, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
    9. Arshanapalli, Bala & Doukas, John, 1993. "International stock market linkages: Evidence from the pre- and post-October 1987 period," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 193-208, February.
    10. Kristin J. Forbes & Menzie D. Chinn, 2004. "A Decomposition of Global Linkages in Financial Markets Over Time," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 705-722, August.
    11. Jose Fernandez-Serrano & Simon Sosvilla-Rivero, 2003. "Modelling the linkages between US and Latin American stock markets," Applied Economics, Taylor & Francis Journals, vol. 35(12), pages 1423-1434.
    12. Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
    13. Paresh Kumar Narayan & Russell Smyth, 2004. "Modelling the linkages between the Australian and G7 stock markets: common stochastic trends and regime shifts," Applied Financial Economics, Taylor & Francis Journals, vol. 14(14), pages 991-1004.
    14. Huang, Bwo-Nung & Yang, Chin-Wei & Hu, John Wei-Shan, 2000. "Causality and cointegration of stock markets among the United States, Japan and the South China Growth Triangle," International Review of Financial Analysis, Elsevier, vol. 9(3), pages 281-297.
    15. Choudhry, Taufiq, 1997. "Stochastic Trends in Stock Prices: Evidence from Latin American Markets," Journal of Macroeconomics, Elsevier, vol. 19(2), pages 285-304, April.
    16. Pan, Ming-Shiun & Liu, Y. Angela & Roth, Herbert J., 1999. "Common stochastic trends and volatility in Asian-Pacific equity markets," Global Finance Journal, Elsevier, vol. 10(2), pages 161-172.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Saadet Kasman & Duygu Ayhan, 2006. "Macroeconomic Volatility under Alternative Exchange Rate Regimes in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 6(2), pages 37-58.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Melike E. Bildirici & Mehmet Salman, 2006. "Measuring Default Risk in Turkey: Econometric Approach," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 8(32), pages 11-36.
    2. Nildag Basak Ceylan, 2006. "The Effects of G-7 Countries’ Stock Markets on the Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 8(32), pages 37-56.
    3. Paresh Kumar Narayan & Russell Smyth, 2004. "Modelling the linkages between the Australian and G7 stock markets: common stochastic trends and regime shifts," Applied Financial Economics, Taylor & Francis Journals, vol. 14(14), pages 991-1004.
    4. Chien, Mei-Se & Lee, Chien-Chiang & Hu, Te-Chung & Hu, Hui-Ting, 2015. "Dynamic Asian stock market convergence: Evidence from dynamic cointegration analysis among China and ASEAN-5," Economic Modelling, Elsevier, vol. 51(C), pages 84-98.
    5. Hüseyin Dağli; & Uğur Sivri & Semra Bank, 2012. "International portfolio diversification opportunities between Turkey and other emerging markets," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 5(1), pages 4-23.
    6. Heng Chen & Russell Smyth & Wing-Keung Wong, 2008. "Is being a super-power more important than being your close neighbour? A study of what moves the Australian stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 18(9), pages 733-747.
    7. Zheng Yi & Chen Heng & Wing-Keung Wong, 2009. "China’s Stock Market Integration with a Leading Power and a Close Neighbor," JRFM, MDPI, vol. 2(1), pages 1-37, December.
    8. Diamandis, Panayiotis F., 2009. "International stock market linkages: Evidence from Latin America," Global Finance Journal, Elsevier, vol. 20(1), pages 13-30.
    9. Kasman Adnan & Vardar Gülin & Okan Berna & Aksoy Gökçe, 2009. "The Turkish Stock Market Integration with Developed and Emerging Countries' Stock Markets: Evidence from Cointegration Tests with and without Regime Shifts," Review of Middle East Economics and Finance, De Gruyter, vol. 5(1), pages 24-49, May.
    10. Simon Sosvilla-Rivero & Pedro Rodriguez, 2010. "Linkages in international stock markets: evidence from a classification procedure," Applied Economics, Taylor & Francis Journals, vol. 42(16), pages 2081-2089.
    11. Yi Zheng & Heng Chen, 2011. "Who is More Important – a Leading Power or a Close Neighbor?," Chapters, in: Lilai Xu (ed.), China’s Economy in the Post-WTO Environment, chapter 1, Edward Elgar Publishing.
    12. Laopodis, Nikiforos T., 2005. "Portfolio diversification benefits within Europe: Implications for a US investor," International Review of Financial Analysis, Elsevier, vol. 14(4), pages 455-476.
    13. Michel Beine & Gunther Capelle-Blancard & Helene Raymond, 2008. "International nonlinear causality between stock markets," The European Journal of Finance, Taylor & Francis Journals, vol. 14(8), pages 663-686.
    14. EVRIM MANDACI, Pinar & CAGLI, Efe Caglar, 2016. "Who Drives Whom? Investigating The Relationship Between The Major Stock Markets," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 20(2), pages 6-24.
    15. Click, Reid W. & Plummer, Michael G., 2005. "Stock market integration in ASEAN after the Asian financial crisis," Journal of Asian Economics, Elsevier, vol. 16(1), pages 5-28, February.
    16. Ewing, Bradley T. & Payne, James E. & Sowell, Clifford, 1999. "NAFTA and North American stock market linkages: an empirical note," The North American Journal of Economics and Finance, Elsevier, vol. 10(2), pages 443-451.
    17. Masih, Abul M. M. & Masih, Rumi, 1999. "Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 251-282, August.
    18. Manning, Neil, 2002. "Common trends and convergence? South East Asian equity markets, 1988-1999," Journal of International Money and Finance, Elsevier, vol. 21(2), pages 183-202, April.
    19. Roni Bhowmik & Wang Shouyang & Abbas Ghulam, 2018. "Return and Volatility Spillovers Effects: Study of Asian Emerging Stock Markets," Journal of Systems Science and Information, De Gruyter, vol. 6(2), pages 97-119, April.
    20. Gilmore, Claire G. & McManus, Ginette M. & Tezel, Ahmet, 2005. "Portfolio allocations and the emerging equity markets of Central Europe," Journal of Multinational Financial Management, Elsevier, vol. 15(3), pages 287-300, July.

    More about this item

    Keywords

    : Macroeconomic variables; Conditional volatility; Conditional variance; ISE; GARCH;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bor:iserev:v:8:y:2006:i:32:p:1-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ahmet Palu (email available below). General contact details of provider: https://edirc.repec.org/data/rdisetr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.