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Capital flows to an emerging financial market in Turkey

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  • Saziye Gazioglu

Abstract

Increased globalization in financial markets implies that the percentage of all shares under foreign ownership in domestic stock markets has been rising. Speculative attacks on the foreign exchange market in February 2001 led to deep economic crisis in Turkey. This article will explore various indicators of the financial crisis in Turkey based on a macro-model. The foreign share of the domestic economy is a key variable to establish the degree of vulnerability during a financial crisis. An empirical investigation shows that the percentage of shares owned by foreigners on the Istanbul Stock Exchange (ISE) has been increasing since 1995 and is currently about 50 percent of the total. Furthermore, the general index of stock market prices in 1999 was at its highest level since 1995. This would imply that the general price index of the stock market is another strong indicator of an impending financial crisis. An empirical investigation of Turkish data based on a theoretical model is presented in this paper. An unexpected capital outflow would certainly cause exchange rate fluctuations, balance of payments problems, and international debt crisis. Hot money inflows boost share prices and keep the real exchange rate high. However, short-term stay of capital implies a sudden capital outflow that creates financial crisis, which results in international debt crisis. This in turn leads to a further increase in loans from the International Monetary Fund (IMF). Relatively high stock market prices may suggest an impending financial crisis. Using Turkish stock market price data, an impending financial crisis can be statistically predicted. Copyright International Atlantic Economic Society 2003

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  • Saziye Gazioglu, 2003. "Capital flows to an emerging financial market in Turkey," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 9(3), pages 189-195, August.
    • Handle: RePEc:kap:iaecre:v:9:y:2003:i:3:p:189-195:10.1007/bf02295442
    DOI: 10.1007/BF02295442
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    1. Waqar BADSHAH & Amaama ABDUL-MALIK & Asad Ul İSLAM KHAN & Rasim OZCAN, 2021. "The Impact of US Sanctions on the Consumer Price Index (CPI) of Turkey," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 22(2), pages 213-221, May.
    2. Jerzy Boehlke & Marcin Faldzinski & Maciej Galecki & Magdalena Osinska, 2020. "Searching for Factors of Accelerated Economic Growth: The Case of Ireland and Turkey," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 292-304.

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