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A Two-Stage Analysis of Interaction Between Stock and Exchange Rate Markets: Evidence from Turkey

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  • Muhammad Ali Faisal

    (SZABIST University)

  • Murat Donduran

    (Yildiz Technical University)

Abstract

In this study, we use a novel approach to explore possible connections between foreign exchange and stock returns using Turkish financial data from 2005 to 2022. Our method involves a two-stage technique. The first stage begins by decomposing individual time series signals into separate intrinsic mode functions (IMFs) with a complete ensemble empirical mode decomposition with added noise algorithm. Extracted IMFs are then used to construct high and low-frequency components through a fine-to-coarse algorithm. In the second phase, we utilized a cross-quantilogram technique to analyze the dependence in quantiles of the original return series along with frequency components obtained in the previous stage. Results revealed several important insights. Firstly, a relatively higher effect ran from stock returns to exchange rate returns for the pertinent period. Secondly, tail dependence is apparent, as returns are discernibly linked. Thirdly, the tail dependence in the returns is more profound in the high-frequency composition than in the low-frequency component. Lastly, the structure of dependence has stayed mostly constant throughout the sample period analyzed.

Suggested Citation

  • Muhammad Ali Faisal & Murat Donduran, 2025. "A Two-Stage Analysis of Interaction Between Stock and Exchange Rate Markets: Evidence from Turkey," Annals of Data Science, Springer, vol. 12(1), pages 171-198, February.
    • Handle: RePEc:spr:aodasc:v:12:y:2025:i:1:d:10.1007_s40745-024-00547-y
    DOI: 10.1007/s40745-024-00547-y
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    More about this item

    Keywords

    CEEMDAN; Cross-quantilogram; Borsa Istanbul; Turkish Lira;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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