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Macroeconomic factors and equity returns in Borsa İstanbul

Author

Listed:
  • Yiğit ATILGAN

    (Sabancı Üniversitesi)

  • K.Özgür DEMİRTAŞ

    (Sabanci Universitesi)

  • Alper ERDOĞAN

    (Sabancı Üniversitesi)

Abstract

This paper investigates equity return exposure to various macroeconomic factors and the performance of factor betas in predicting the cross-sectional variation in stock returns. We utilize a two-step procedure to directly test the implications of the Arbitrage Pricing Theory. First, we calculate monthly factor betas and then, we estimate the sensitivity of equity returns towards the factor betas. We find that (i) there exists a negative and significant relation between interest rate betas and future equity returns; (ii) the inclusion of market, book-to-market, size and momentum factor betas does not subsume the predictive power of the interest rate beta; and (iii) these results are driven by the debt-to-equity ratios of individual firms. We conclude that the sensitivity of returns towards interest rates which is driven by financial leverage is a priced risk factor in the Turkish stock market.

Suggested Citation

  • Yiğit ATILGAN & K.Özgür DEMİRTAŞ & Alper ERDOĞAN, 2015. "Macroeconomic factors and equity returns in Borsa İstanbul," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 30(349), pages 09-30.
    • Handle: RePEc:iif:iifjrn:v:30:y:2015:i:349:p:09-30
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    Citations

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    Cited by:

    1. Atilgan, Yigit & Demirtas, K. Ozgur & Erdogan, Alper, 2016. "Share issuance and equity returns in Borsa Istanbul," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 320-333.

    More about this item

    Keywords

    Asset Pricing Models; Equity Returns; Arbitrage Pricing Theory; Macroeconomic Factors.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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