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Volatility of ISE and Business Cycle

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  • Saadet Kirbas-Kasman
  • Adnan Kasman
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    Abstract

    In this paper, we use a disaggregated approach suggested in (Campbell et al. 2001) to study the volatility of a typical stock in the Istanbul Stock Exchange (ISE) at the market, industry, and firm levels over the period 1992-1999. The aim of study is to examine the link between these three disaggregated volatility measures and selected macroeconomic variables. The chosen macroeconomic variables are GDP growth, industrial production, inflation rate and exchange rate. The results indicate that market level volatility accounts for the greatest share of the total firm volatility on average. The results further suggest that market and firm level volatility have positive correlation with leads and lags of exchange rate while industry level volatility has positive correlation with inflation rate. The results also suggest that all the components of volatility do not exhibit counter-cyclical behavior with respect to GDP growth and industrial production.

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    Bibliographic Info

    Article provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.

    Volume (Year): 3 (2003)
    Issue (Month): 1 ()
    Pages: 67-84

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    Handle: RePEc:tcb:cebare:v:3:y:2003:i:1:p:67-84

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    Related research

    Keywords: Firm-level volatility; Industry-level volatility; ISE; Business cycle;

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    References

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    1. Hamilton, James D & Gang, Lin, 1996. "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(5), pages 573-93, Sept.-Oct.
    2. Cem Payaslioglu, 2001. "Testing Volatility Asymmetry in Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, Research and Business Development Department, Borsa Istanbul, vol. 5(18), pages 1-12.
    3. repec:att:wimass:9220 is not listed on IDEAS
    4. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 101(405), pages 157-79, March.
    5. Kenneth D. West & Whitney K. Newey, 1995. "Automatic Lag Selection in Covariance Matrix Estimation," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0144, National Bureau of Economic Research, Inc.
    6. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, American Finance Association, vol. 56(1), pages 1-43, 02.
    7. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers, Princeton, Department of Economics - Econometric Research Program 338, Princeton, Department of Economics - Econometric Research Program.
    8. Richard Harris & C. Coskun Kucukozmen, 2001. "The empirical distribution of stock returns: evidence from an emerging European market," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(6), pages 367-371.
    9. Sequeira, John M. & Lan, Dong, 2003. "Does world-level volatility matter for the average firm in a global equity market?," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 13(4-5), pages 341-357, December.
    10. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
    11. Officer, R R, 1973. "The Variability of the Market Factor of the New York Stock Exchange," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 46(3), pages 434-53, July.
    12. Zafer Yavan & C.Bulent Aybar, 1998. "Volatility in Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, Research and Business Development Department, Borsa Istanbul, vol. 2(6), pages 35-48.
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