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ISE and Exchange Market Pressure

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  • Mete Feridun

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    (Department of Economics, Loughborough University)

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    Abstract

    This article aims at investigating the long-run relationship between stock prices and speculative pressure in the Turkish exchange market through Granger-causality analysis for the period 1986:01-2006:11. For this purpose an Exchange Market Pressure Index is built using the weighted average of exchange rate changes, interest rate changes and foreign exchange reserve changes. This index is then used in pairwise causality analyses with Istanbul Stock Exchange (ISE) National-100 Index. Results of the ADF unit root tests suggest that the series are stationary. Hence, no-cointegration analysis was carried out before the Granger-causality tests. Results of Granger-causality indicates that there exists no long-run relationship between stock prices and the speculative pressure in the exchange market in Turkey.

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    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/mferidun_wp1.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2006_22.

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    Date of creation: Dec 2006
    Date of revision: Dec 2006
    Handle: RePEc:lbo:lbowps:2006_22

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    Postal: Loughborough, Leicestershire, LE11 3TU
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    Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
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    Related research

    Keywords: currency crises; stock prices; co-integration; exchange market pressure.;

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    1. Edin, Per-Anders & Vredin, Anders, 1993. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Economic Journal, Royal Economic Society, vol. 103(416), pages 161-75, January.
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    3. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
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    5. Granger, Clive W.J. & Huang, Bwo-Nung & Yang, Chin W., 1998. "A Bivariate Causality between Stock Prices and Exchange Rates: Evidence from Recent Asia Flu," University of California at San Diego, Economics Working Paper Series qt9bk607p6, Department of Economics, UC San Diego.
    6. Hali J. Edison, 2000. "Do indicators of financial crises work? an evaluation of an early warning system," International Finance Discussion Papers 675, Board of Governors of the Federal Reserve System (U.S.).
    7. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
    8. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
    9. Friedman, Milton, 1988. "Money and the Stock Market," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 221-45, April.
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