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The Analysis Of The Relation Between Investor Risk Appetite And Stock Market Crises In Istanbul Stock Exchange


  • Erdinç ALTAY


This research analyzes the relation between investor risk appetite and stock market crises in ISE during the 08.07.1994-04.10.2011 period by utilizing the methodology of Kumar and Persaud (2002). Stock market crises are determined by the CMAX method which identifies the stress days in ISE. The investor risk appetite index, which is measured by the rank correlation between the standard deviation of past 66 days excess returns and the average of the preceeding 5 days excess returns of the stocks listed in ISE, is used to produce 4 explanatory variables for the probit models to estimate the probability of the stock market crises. These 4 risk appetite indicators and the spread between long and short term interest rates are employed into the probit models in order to estimate the probability of crises. Probit model correctly estimated 74,21% of the stock market crise days at 50% threshold level. The signals based on the 22 days average of the estimated crise probability also estimated 67,30% of the stock market crise days in ISE at the same threshold level.

Suggested Citation

  • Erdinç ALTAY & Burcay YASAR AKCALI, 2012. "The Analysis Of The Relation Between Investor Risk Appetite And Stock Market Crises In Istanbul Stock Exchange," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 6(1), pages 45-79.
  • Handle: RePEc:bdd:journl:v:6:y:2012:i:1:p:45-79

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    Risk appetite; Stock market crises; Istanbul Stock Exchange; Probit analysis.;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy


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