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Volatility of ISE and Business Cycle


  • Saadet Kirbas-Kasman
  • Adnan Kasman


In this paper, we use a disaggregated approach suggested in (Campbell et al. 2001) to study the volatility of a typical stock in the Istanbul Stock Exchange (ISE) at the market, industry, and firm levels over the period 1992-1999. The aim of study is to examine the link between these three disaggregated volatility measures and selected macroeconomic variables. The chosen macroeconomic variables are GDP growth, industrial production, inflation rate and exchange rate. The results indicate that market level volatility accounts for the greatest share of the total firm volatility on average. The results further suggest that market and firm level volatility have positive correlation with leads and lags of exchange rate while industry level volatility has positive correlation with inflation rate. The results also suggest that all the components of volatility do not exhibit counter-cyclical behavior with respect to GDP growth and industrial production.

Suggested Citation

  • Saadet Kirbas-Kasman & Adnan Kasman, 2003. "Volatility of ISE and Business Cycle," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(1), pages 67-84.
  • Handle: RePEc:tcb:cebare:v:3:y:2003:i:1:p:67-84

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    References listed on IDEAS

    1. Zafer Yavan & C.Bulent Aybar, 1998. "Volatility in Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 2(6), pages 35-48.
    2. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, February.
    3. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 631-653.
    4. Officer, R R, 1973. "The Variability of the Market Factor of the New York Stock Exchange," The Journal of Business, University of Chicago Press, vol. 46(3), pages 434-453, July.
    5. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
    6. Cem Payaslioglu, 2001. "Testing Volatility Asymmetry in Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 5(18), pages 1-12.
    7. Sequeira, John M. & Lan, Dong, 2003. "Does world-level volatility matter for the average firm in a global equity market?," Journal of Multinational Financial Management, Elsevier, vol. 13(4-5), pages 341-357, December.
    8. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-1153, December.
    9. Hamilton, James D & Gang, Lin, 1996. "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 573-593, Sept.-Oct.
    10. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    11. Richard Harris & C. Coskun Kucukozmen, 2001. "The empirical distribution of stock returns: evidence from an emerging European market," Applied Economics Letters, Taylor & Francis Journals, vol. 8(6), pages 367-371.
    12. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
    13. Mustafa Kemal Yilmaz, 1997. "Stock Market Volatility and Its Term Structure: Empirical Evidence From the Turkish Market," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 1(3), pages 25-42.
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    More about this item


    Firm-level volatility; Industry-level volatility; ISE; Business cycle;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


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