IDEAS home Printed from https://ideas.repec.org/a/vls/finstu/v20y2016i3p80-94.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.icfm.ro/RePEc/vls/vls_pdf/vol20i3p80-94.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. P. S. Sephton, 2002. "Fractional cointegration: Monte Carlo estimates of critical values, with an application," Applied Financial Economics, Taylor & Francis Journals, vol. 12(5), pages 331-335.
    2. Ingolf Dittmann, 2004. "Error Correction Models for Fractionally Cointegrated Time Series," Journal of Time Series Analysis, Wiley Blackwell, vol. 25(1), pages 27-32, January.
    3. Solnik, Bruno, 1987. "Using Financial Prices to Test Exchange Rate Models: A Note," Journal of Finance, American Finance Association, vol. 42(1), pages 141-149, March.
    4. Erman Erbaykal & H. Aydin Okuyan, 2007. "The Relationship Between Stock Prices and Exchange Rates: An Empirical Study on Emerging Markets," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 1(1), pages 77-90.
    5. Nieh, Chien-Chung & Lee, Cheng-Few, 2001. "Dynamic relationship between stock prices and exchange rates for G-7 countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(4), pages 477-490.
    6. Alok Kumar Mishra, 2004. "Stock Market and Foreign Exchange Market in India: Are they Related?," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 5(2), pages 209-232, September.
    7. Kim, Ki-ho, 2003. "Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model," Review of Financial Economics, Elsevier, vol. 12(3), pages 301-313.
    8. Claude Diebolt & Vivien Guiraud, 2005. "A Note On Long Memory Time Series," Quality & Quantity: International Journal of Methodology, Springer, vol. 39(6), pages 827-836, December.
    9. Dornbusch, Rudiger & Fischer, Stanley, 1980. "Exchange Rates and the Current Account," American Economic Review, American Economic Association, vol. 70(5), pages 960-971, December.
    10. Yau, Hwey-Yun & Nieh, Chien-Chung, 2009. "Testing for cointegration with threshold effect between stock prices and exchange rates in Japan and Taiwan," Japan and the World Economy, Elsevier, vol. 21(3), pages 292-300, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Willem THORBECKE & Ahmet SENGONUL, 2022. "The Impact of Exchange Rates on the Turkish Economy," Discussion papers 22043, Research Institute of Economy, Trade and Industry (RIETI).
    2. 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.
    3. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew Phiri, 2020. "Structural changes in exchange rate-stock returns dynamics in South Africa: examining the role of crisis and new trading platform," Economic Change and Restructuring, Springer, vol. 53(1), pages 171-193, February.
    2. N Mozumder & G De Vita & K.S. Kyaw & C Larkin, 2015. "Volatility Spillover Between Stock Prices and Exchange Rates: New Evidence Across the Recent Financial Crisis Period," Economic Issues Journal Articles, Economic Issues, vol. 20(1), pages 43-64, March.
    3. Mehmet PEKKAYA & Ersin AÇIKGÖZ & Veli YILANCI, 2017. "Panel causality analysis between exchange rates and stock indexes for fragile five," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(611), S), pages 33-44, Summer.
    4. Ülkü, Numan & Demirci, Ebru, 2012. "Joint dynamics of foreign exchange and stock markets in emerging Europe," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(1), pages 55-86.
    5. Xie, Zixiong & Chen, Shyh-Wei & Wu, An-Chi, 2020. "The foreign exchange and stock market nexus: New international evidence," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 240-266.
    6. Andrieș, Alin Marius & Ihnatov, Iulian & Tiwari, Aviral Kumar, 2014. "Analyzing time–frequency relationship between interest rate, stock price and exchange rate through continuous wavelet," Economic Modelling, Elsevier, vol. 41(C), pages 227-238.
    7. Sinem Derindere KOSEOGLU & Emrah Ismail CEVIK, 2013. "Testing for Causality in Mean and Variance between the Stock Market and the Foreign Exchange Market: An Application to the Major Central and Eastern European Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(1), pages 65-86, March.
    8. Christos Kollias & Stephanos Papadamou & Costas Siriopoulos, 2016. "Stock markets and effective exchange rates in European countries: threshold cointegration findings," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 215-274, August.
    9. Georgios, Katechos, 2011. "On the relationship between exchange rates and equity returns: A new approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(4), pages 550-559, October.
    10. Shaobo Long & Mengxue Zhang & Keaobo Li & Shuyu Wu, 2021. "Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-21, December.
    11. Tran Quang Huy, 2016. "The Linkage Between Exchange Rates and Stock Prices: Evidence from Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(7), pages 363-373, July.
    12. Abbas Ghulam & Wang Shouyang & Bhowmik Roni & Koju Laxmi, 2017. "Cointegration and Causality Relationship Between Stock Market, Money Market and Foreign Exchange Market in Pakistan," Journal of Systems Science and Information, De Gruyter, vol. 5(1), pages 1-20, February.
    13. I, Sahadudheen I, 2013. "Volatility spillovers of rupee-dollar and rupee-euro exchange rates on Indian stock prices: evidence from GARCH model," MPRA Paper 65746, University Library of Munich, Germany, revised 2013.
    14. Tian, Maoxi & El Khoury, Rim & Alshater, Muneer M., 2023. "The nonlinear and negative tail dependence and risk spillovers between foreign exchange and stock markets in emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    15. Paulo Ferreira & Marcus Fernandes da Silva & Idaraí Santos de Santana, 2019. "Detrended Correlation Coefficients Between Exchange Rate (in Dollars) and Stock Markets in the World’s Largest Economies," Economies, MDPI, vol. 7(1), pages 1-11, February.
    16. Hock Tsen Wong, 2016. "Real Exchange Rate Returns And Real Stock Price Returns In The Stock Market Of Malaysia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1319-1349, December.
    17. Gözde YILDIRIM, Zafer ADALI, 2018. "Linear and Non-Linear Causality Tests of Stock Price and Real Exchange Rate Interactions in Turkey," Fiscaoeconomia, Tubitak Ulakbim JournalPark (Dergipark), issue 1.
    18. Lin, Jeng-Bau & Fu, Shan-Heng, 2016. "Investigating the dynamic relationships between equity markets and currency markets," Journal of Business Research, Elsevier, vol. 69(6), pages 2193-2198.
    19. Tsagkanos, Athanasios & Siriopoulos, Costas, 2013. "A long-run relationship between stock price index and exchange rate: A structural nonparametric cointegrating regression approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 106-118.
    20. Korhonen Marko, 2015. "The Relation between National Stock Prices and Effective Exchange Rates: Does It Affect Exchange Rate Exposure?," Global Economy Journal, De Gruyter, vol. 15(2), pages 241-256, July.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vls:finstu:v:20:y:2016:i:3:p:80-94. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Daniel Mateescu (email available below). General contact details of provider: https://edirc.repec.org/data/cfiarro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.