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The Asymmetric Impact of Macroeconomic Shocks on Stock Returns in Turkey: A Nonlinear ARDL Approach

Author

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  • Kassouri YACOUBA

    (Erciyes University, Faculty of Economics and Administrative Sciences, Department of Economics, Kayseri, 38039, Turkey.)

  • Halil ALTINTAS

    (Erciyes University, Faculty of Economics and Administrative Sciences, Department of Economics, Kayseri, 38039, Turkey.)

Abstract

Several studies in the finance literature have investigated the impact of macroeconomic variables on stock returns by assuming symmetric adjustments between variables. Our study abandons this assumption by analyzing the potential asymmetric behavior of stock market to macroeconomic variables. Rare studies on Turkey’s financial market account for asymmetry in the relationship between series. Most of the previous studies neglect asymmetry and use traditional linear time series approaches, which may lead the relevant output estimation to be biased. We fill in this empirical gap by exploring the effects of shocks in exchange rate, money supply and interest rate on stock returns through a multivariate nonlinear ARDL model. Using monthly data from January 2003 to May 2017, our empirical results provide evidence in favor of asymmetric cointegration relationships between stock returns-real effective exchange rate nexus, stock returns-interest rate nexus and stock returns-money supply nexus in Turkey. It is empirically shown that stock prices react asymmetrically to the real effective exchange rate changes in the short-run and long-run, while the effects of the changes in interest rate on stock returns are asymmetrical only in the short-run. We find that money supply changes are symmetrically related to stock returns in Turkey. These findings imply that policy makers should take into account asymmetry between selected macroeconomic variables and stock returns when developing policy to prevent financial risks.

Suggested Citation

  • Kassouri YACOUBA & Halil ALTINTAS, 2019. "The Asymmetric Impact of Macroeconomic Shocks on Stock Returns in Turkey: A Nonlinear ARDL Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 98-116, June.
    • Handle: RePEc:rjr:romjef:v::y:2019:i:2:p:98-116
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    References listed on IDEAS

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    Cited by:

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    2. Kassouri, Yacouba & Altıntaş, Halil & Alancioğlu, Erdal & Kacou, Kacou Yves Thierry, 2021. "New insights on the debt-growth nexus: A combination of the interactive fixed effects and panel threshold approach," International Economics, Elsevier, vol. 168(C), pages 40-55.
    3. Veli Yilanci & Onder Ozgur & Muhammed Sehid Gorus, 2021. "Stock prices and economic activity nexus in OECD countries: new evidence from an asymmetric panel Granger causality test in the frequency domain," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-22, December.
    4. Wang, Xiangning & Huang, Qian & Zhang, Shuguang, 2023. "Effects of macroeconomic factors on stock prices for BRICS using the variational mode decomposition and quantile method," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    5. Omer Ahmed Sayed Mohamed & Faiza Omer Mohammed Elmahgop, 2020. "Is the Effect of the Exchange Rate on Stock Prices Symmetric or Asymmetric? Evidence from Sudan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(2), pages 209-215.

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    More about this item

    Keywords

    stock returns; exchange rates; nonlinear ARDL; financial market; money supply; interest rate;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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