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The Relationship of Exchange Rate and Oil Price Volatilities with Stock Returns: Evidence from Borsa Istanbul Sector Indexes

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  • Buket Altınoz

    (Nişantaşı University, Vocational School, İstanbul, Turkiye)

  • Alican Umut

    (Nişantaşı University, Faculty of Economics, Administrative and Social Sciences, Istanbul, Turkiye)

Abstract

The aim of this study is to investigate the effects of volatility in exchange rates (USD and EURO) on the BİST 100 and 23 sub-sector indexes in Borsa Istanbul using monthly data from January 2008 to April 2021. For this purpose, long-term coefficients for each model were investigated using the fully-modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) estimators after determining the long-term relationships among the variables with the Johansen cointegration test. The use of these methods for the first time and adoption of a current data set in this way constitute this study’s contribution to literature. The study reached results that show an increase in the USD to negatively affect the stock returns for all sectors, while the Euro’s coefficient was statistically insignificant in all other models. When examining the effect of oil prices on sector indices, this coefficient is positive for most sectors, and statistically significant for a limited number of sectors. However, oil prices are understood to have a smaller positive effect than the negative effect from changes in the USD exchange rate.

Suggested Citation

  • Buket Altınoz & Alican Umut, 2022. "The Relationship of Exchange Rate and Oil Price Volatilities with Stock Returns: Evidence from Borsa Istanbul Sector Indexes," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 72(72-1), pages 385-405, June.
    • Handle: RePEc:ist:journl:v:72:y:2022:i:1:p:385-405
    DOI: 10.26650/ISTJECON2021-1026350
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    References listed on IDEAS

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    1. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 99-125.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Basher, Syed Abul & Haug, Alfred A. & Sadorsky, Perry, 2012. "Oil prices, exchange rates and emerging stock markets," Energy Economics, Elsevier, vol. 34(1), pages 227-240.
    4. Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
    5. Roger D. Huang & Ronald W. Masulis & Hans R. Stoll, 1996. "Energy shocks and financial markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(1), pages 1-27, February.
    6. Bouoiyour, Jamal & Selmi, Refk & Hussain Shahzad, Syed Jawad & Shahbaz, Muhammad, 2017. "Response of Stock Returns to Oil Price Shocks: Evidence from Oil Importing and Exporting Countries," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 32(4), pages 913-936.
    7. Syed Abul Basher & Alfred Haug & Perry Sadorsky, 2017. "The impact of oil-market shocks on stock returns in major oil-exporting countries: A Markov-switching approach," Working Papers 1710, University of Otago, Department of Economics, revised Oct 2017.
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    Cited by:

    1. Nigar Huseynli, 2023. "BIST Tourism and BIST Electricity Index Relationship," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 306-312, May.

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    More about this item

    Keywords

    Exchange rate; oil; BIST; FMOLS; DOLS JEL Classification: D53 ; E22 ; B23;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies

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