IDEAS home Printed from https://ideas.repec.org/a/ejn/ejbmjr/v8y2020i2p106-123.html
   My bibliography  Save this article

The Impact of the Exchange Rate Volatility on the Stock Return Volatility in Turkey

Author

Listed:
  • Derya Guler

    (University of Amsterdam, The Netherlands)

Abstract

This research investigates the impact of the Turkish Lira to U.S. Dollar (TRY/USD) exchange rate volatility on the Borsa Istanbul 100 Index (BIST100) return volatility, in particular by providing insight into possible volatility spillover effects between TRY/USD exchange rates and BIST100 returns. For studying the impact of the TRY/USD exchange rate volatility on the BIST100 return volatility, a simple Ordinary Least Squares (OLS) model and a novel Bivariate Asymmetric Quadratic GARCH (BAQ-GARCH) model are employed on the daily data during the period over July 2005 - April 2020. Evidence from this study shows that there is a positive impact of the TRY/USD exchange rate volatility on the BIST100 return volatility. The benefit of the BAQ-GARCH model, which is used to examine volatility spillover effects, is that it can capture the impact of good and bad news separately and reveal the interaction between the assets while taking into account asymmetric effects. This research can be helpful to better understand the structure of the BAQ-GARCH model and the volatility spillover interactions by interpreting the BAQ-GARCH model’s parameter estimates. The results of the BAQ-GARCH model indicate that there are negative bidirectional asymmetric volatility spillover effects. The negative asymmetric spillover means that bad news in TRY/USD exchange rates and bad news in BIST100 returns increase the next day’s volatility of BIST100 returns and the negative shocks will increase the volatility more than positive shocks. The economic interpretation of this is that bad news of a weakening Turkish Lira appears to have more impact on BIST100 returns than news of a rise in Turkish Lira. These empirical findings can be used by policymakers to create financial stability, and by investors to diminish investment risks while making decisions.

Suggested Citation

  • Derya Guler, 2020. "The Impact of the Exchange Rate Volatility on the Stock Return Volatility in Turkey," Eurasian Journal of Business and Management, Eurasian Publications, vol. 8(2), pages 106-123.
  • Handle: RePEc:ejn:ejbmjr:v:8:y:2020:i:2:p:106-123
    as

    Download full text from publisher

    File URL: https://eurasianpublications.com/wp-content/uploads/2021/02/EJBM-8.2.5.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fengming Qin & Junru Zhang & Zhaoyong Zhang, 2018. "RMB Exchange Rates and Volatility Spillover across Financial Markets in China and Japan," Risks, MDPI, vol. 6(4), pages 1-26, October.
    2. Cumhur Erdem & Cem Kaan Arslan & Meziyet Sema Erdem, 2005. "Effects of macroeconomic variables on Istanbul stock exchange indexes," Applied Financial Economics, Taylor & Francis Journals, vol. 15(14), pages 987-994.
    3. Angi RÖSCH & Harald SCHMIDBAUER, 2008. "Volatility Spillovers between Crude Oil Prices and US Dollar to Euro Exchange Rates," EcoMod2008 23800119, EcoMod.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lennart Ante & Florian Fiedler & Fred Steinmetz & Ingo Fiedler, 2023. "Profiling Turkish Cryptocurrency Owners: Payment Users, Crypto Investors and Crypto Traders," JRFM, MDPI, vol. 16(4), pages 1-13, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Charles K.D. Adjasi, 2009. "Macroeconomic uncertainty and conditional stock-price volatility in frontier African markets: Evidence from Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 10(4), pages 333-349, August.
    2. Maryatmo, Rogatianus, 2010. "Pengaruh Jangka Pendek dan Jangka Panjang Perubahan Suku Bunga dan Kurs Rupiah Terhadap Harga Saham : Studi Empiris di Indonesia (2000:1 – 2010:4)," MPRA Paper 25532, University Library of Munich, Germany.
    3. Chunming Shen, 2022. "Digital RMB, RMB Internationalization and Sustainable Development of the International Monetary System," Sustainability, MDPI, vol. 14(10), pages 1-22, May.
    4. Alexander Schätz, 2010. "Macroeconomic Effects on Emerging Market Sector Indices," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(2), pages 131-169, August.
    5. Miras, Hassan & Masih, Mansur, 2017. "Stock returns and macroeconomic factors in an emerging economy: Malaysian evidence," MPRA Paper 101229, University Library of Munich, Germany.
    6. Animesh Bhattacharjee & Joy Das, 2021. "Investigating the Long-run and the Short-run Relationship Between Domestic Macroeconomic Forces and Indian Equity Market: Evidence Based on ARDL Bounds Testing Approach," Paradigm, , vol. 25(1), pages 61-76, June.
    7. Cristina Balint, 2023. "The Impact of the Macroeconomic Factors on the Bucharest Stock Exchange during the Latest Crisis," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 26(86), pages 54-66, December,.
    8. Bülent Köksal & Ahmet Çalışkan, 2012. "Political Business Cycles and Partisan Politics: Evidence from a Developing Economy," Economics and Politics, Wiley Blackwell, vol. 24(2), pages 182-199, July.
    9. Zhou, Xinmiao & Zhang, Junru & Zhang, Zhaoyong, 2021. "How does news flow affect cross-market volatility spillovers? Evidence from China’s stock index futures and spot markets," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 196-213.
    10. R. Ratneswary V. Rasiah, 2010. "Macroeconomic Activity And The Malaysian Stock Market: Empirical Evidence Of Dynamic Relations," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(2), pages 59-69.
    11. Xiaoyi Shen & Albert K. Tsui & Zhaoyong Zhang, 2019. "Volatility Timing in CPF Investment Funds in Singapore: Do They Outperform Non-CPF Funds?," Risks, MDPI, vol. 7(4), pages 1-16, October.
    12. Mingming Li & Fengming Qin & Zhaoyong Zhang, 2021. "Short-Term Capital Flows, Exchange Rate Expectation and Currency Internationalization: Evidence from China," JRFM, MDPI, vol. 14(5), pages 1-15, May.
    13. Javed Pervaiz & Teng Jian-Zhou & Junaid Masih, 2018. "Long Run Relationship between Selected Macroeconomic Indicators and Banking Sector in Pakistan," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(2), pages 67-81, February.
    14. Alenka Kavkler & Mejra Festić, 2011. "Modelling Stock Exchange Index Returns in Different GDP Growth Regimes," Prague Economic Papers, Prague University of Economics and Business, vol. 2011(1), pages 3-22.
    15. Guneratne Wickremasinghe, 2011. "The Sri Lankan stock market and the macroeconomy: an empirical investigation," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 28(3), pages 179-195, August.
    16. Cyrus Mutuku & Kirwa Lelei Ng¡¯eny, 2015. "Macroeconomic Variables and the Kenyan Equity Market: A Time Series Analysis," Business and Economic Research, Macrothink Institute, vol. 5(1), pages 1-10, June.
    17. 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.
    18. Kim Hiang Liow & James R. Webb, 2009. "Common factors in international securitized real estate markets," Review of Financial Economics, John Wiley & Sons, vol. 18(2), pages 80-89, April.
    19. Shailesh Rastogi & Chaitaly Athaley, 2019. "Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective," JRFM, MDPI, vol. 12(2), pages 1-15, June.
    20. Narjiss Araba & Alain François-Heude, 2019. "Price discovery and volatility spillovers in the French wheat market," Post-Print hal-03088859, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ejn:ejbmjr:v:8:y:2020:i:2:p:106-123. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Esra Barakli (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.