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Fractional Cointegration Analysis Of Stock Market And Exchange Rates: The Case Of Turkey

Author

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  • ERER, Deniz

    (Ege Üniversitesi Sosyal Bilimler Enstitüsü, İktisat Anabilim Dalı)

  • ERER, Elif

    (Ege Üniversitesi Sosyal Bilimler Enstitüsü, İktisat Anabilim Dalı)

  • GÜLEÇ, Tuna Can

    (Celal Bayar Üniversitesi, SBE, Muhasebe ve Finans Anabilim Dalı)

Abstract

The fluctuations and responses between the exchange rate and the stock market has been a topic of interest for both policy makers and market participants for a long time. The aim of the study is to examine so-called relationship using fractional cointegration analysis. For this purpose, we utilized from Borsa İstanbul and daily exchange rates USD/TRY and EUR/TRY for period 2002:01–2015:04 to determine this relationship. Fractional cointegration analysis indicates presence of an equilibrium in the long term in series and fractional integrated errors show persistent characteristics which indicate long memory. Therefore instead of using classical cointegration we have decided using Geweke and Porter-Hudak fractional cointegration for more accurate results. Results indicate that there is a significant positive cointegration between exchange rates and stock prices in Turkish market Borsa İstanbul. This study contributes to literature by analyzing the phenomenon under long memory conditions in Borsa Istanbul.

Suggested Citation

  • ERER, Deniz & ERER, Elif & GÜLEÇ, Tuna Can, 2016. "Fractional Cointegration Analysis Of Stock Market And Exchange Rates: The Case Of Turkey," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 20(3), pages 80-94.
  • Handle: RePEc:vls:finstu:v:20:y:2016:i:3:p:80-94
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    References listed on IDEAS

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    Cited by:

    1. Yaya, OlaOluwa S & Gil-Alana, Luis A., 2018. "High and Low Intraday Commodity Prices: A Fractional Integration and Cointegration Approach," MPRA Paper 90518, University Library of Munich, Germany.
    2. Atikullah Ibrahim* & Siti Aida Sheikh Hussin & Zalina Zahid & SitiShalizaMohd Khairi, 2018. "Evaluation of Long Memory on the Malaysia Exchange Rate Market," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 653-656:6.

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    More about this item

    Keywords

    Financial Markets; Fractional Integration; Fractional Cointegration;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • A1 - General Economics and Teaching - - General Economics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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