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The impact of interest rate and exchange rate volatility on banks' stock returns and volatility: Evidence from Turkey

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  • Kasman, Saadet
  • Vardar, Gülin
  • Tunç, Gökçe

Abstract

This paper investigates the effects of interest rate and foreign exchange rate changes on Turkish banks' stock returns using the OLS and GARCH estimation models. The results suggest that interest rate and exchange rate changes have a negative and significant impact on the conditional bank stock return. Also, bank stock return sensitivities are found to be stronger for market return than interest rates and exchange rates, implying that market return plays an important role in determining the dynamics of conditional return of bank stocks. The results further indicate that interest rate and exchange rate volatility are the major determinants of the conditional bank stock return volatility.

Suggested Citation

  • Kasman, Saadet & Vardar, Gülin & Tunç, Gökçe, 2011. "The impact of interest rate and exchange rate volatility on banks' stock returns and volatility: Evidence from Turkey," Economic Modelling, Elsevier, vol. 28(3), pages 1328-1334, May.
    • Handle: RePEc:eee:ecmode:v:28:y:2011:i:3:p:1328-1334
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