Year 2020, Volume 5 , Issue 2, Pages 17 - 36 2020-12-31

Dynamic Effects of Macroeconomic Fundamentals on Stock Market Movements: Evidence from BIST100

Mortaza OJAGHLOU [1]


In this study we examine whether the Efficient Market Hypothesis (EMH) is valued in Turkey (BIST1001) or not and we also examine the ability of essential macroeconomic variables to predict the volatility of Istanbul stock market returns. The relationship is examined through the analysis of the quarterly data concerning the Istanbul stock market index (BIST-100 ) and selected essential macroeconomic indicates in Turkey over the period of 2003Q01 until 2019Q01. In order to investigate the relationship between the variables and BIST-100, Phillips-Ouliaris Cointegration, Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL (NLARDL) models and also Bayesian Vector Autoregression (Litterman-Minnesota Bayesian VAR) are employed. The findings of the NLARDL test indicates that variables are cointegrated and there is positive and statistically significant asymmetric long run relationship from inflation to Istanbul stock market and also GDP, nominal exchange rate, S&P500 have significant and positive long run effect on Istanbul stock market return. These results suggest that the Istanbul stock market return (BIST-100) has consistent with the Efficient Market Hypothesis (EMH).

BIST-100, Stock Return Volatility, NLARDL, Bayesian VAR
  • Acikalin, Sezgin, Rafet Aktas, and Seyfettin Unal. 2008. “Relationships between Stock Markets and Macroeconomic Variables: An Empirical Analysis of the Istanbul Stock Exchange.” Investment Management and Financial Innovations 5(1): 10.
  • Alshogeathri, Ali Mofleh. 2011. “Macroeconomic Determinants Of The Stock Market Movements : Empirical Evidence From The Saudi Stock Market,.” PHD Thesis Department of Economics, Kansas State University.
  • Ashley, Richard A., and Randal J. Verbrugge. 2009. “To Difference or Not to Difference: A Monte Carlo Investigation of Inference in Vector Autoregression Models.” International Journal of Data Analysis Techniques and Strategies 1(3): 242.
  • Asprem, Mads. 1989. “Stock Prices, Asset Portfolios and Macroeconomic Variables in Ten European Countries.” Journal of Banking & Finance 13(4–5): 589–612.
  • Awokuse, Titus O., Aviral Chopra, and David A. Bessler. 2009. “Structural Change and International Stock Market Interdependence: Evidence from Asian Emerging Markets.” Economic Modelling 26(3): 549–59.
  • Beine, Michel, Antonio Cosma, and Robert Vermeulen. 2010. “The Dark Side of Global Integration: Increasing Tail Dependence.” Journal of Banking & Finance 34(1): 184–92.
  • Bernanke, Ben S. et al. 1997. “Systematic Monetary Policy and the Effects of Oil Price Shocks.” Brookings Papers on Economic Activity 1997(1): 91.
  • Bernanke, Ben S., and Alan S. Blinder. 1992. “The Federal Funds Rate and the Channels of Monetary Transmission.” The American Economic Review 82(2): 901–21.
  • Bjørnland, Hilde C., and Kai Leitemo. 2005. Identifying the Interdependence between US Monetary Policy and the Stock Market. Rochester, NY: Social Science Research Network. SSRN Scholarly Paper. https://papers.ssrn.com/abstract=1018594 (February 10, 2020).
  • Brooks, Robin, and Marco Del Negro. 2004. “The Rise in Comovement across National Stock Markets: Market Integration or IT Bubble?” Journal of Empirical Finance 11(5): 659–80.
  • Carriero, Andrea. “Separately, Each of the Two Equations Constitutes a Restricted ADL Model: Same #lags for Both Y1,t and Y2,t in Both Equations. Current Value of Additional Explanatory Variable ("Xt ") Is Ruled Out.” : 69.
  • Chaudhuri, K., and S. Smiles. 2004. “Stock Market and Aggregate Economic Activity: Evidence from Australia.” Applied Financial Economics 14(2): 121–29.
  • Chen, Nai-Fu, Richard Roll, and Stephen Ross. 1986. “Economic Forces and the Stock Market.” The Journal of Business 59(3): 383–403.
  • Click, Reid W., and Michael G. Plummer. 2005. “Stock Market Integration in ASEAN after the Asian Financial Crisis.” Journal of Asian Economics 16(1): 5–28.
  • Darrat, Ali F. 1990. “Stock Returns, Money, and Fiscal Deficits.” Journal of Financial and Quantitative Analysis 25(3): 387–98.
  • Demir, Caner. 2019. “Macroeconomic Determinants of Stock Market Fluctuations: The Case of BIST-100.” Economies 7(1): 8.
  • Doan, Thomas, Robert Litterman, and Christopher Sims. 1986. “Forecasting and Conditional Projection Using Realistic Prior Distribution.” Econometric Reviews 3.
  • Dornbusch, Rudiger, and Stanley Fischer. 1980. “Exchange Rates and the Current Account.” American Economic Review 70(5): 960–71.
  • Errunza, Vihang, and Ked Hogan. 1998. “Macroeconomic Determinants of European Stock Market Volatility.” European Financial Management 4(3): 361–77.
  • Fama, F. Eugene. 1965. “The Behavior of Stock-Market Prices. Journal of Business, 38, 34-105.” Journal of Business 38: 34–105.
  • “Frankel, J. A. (1993) Monetary and Portfolio -Balan Ce Models of the Determination of Exchange Rates. Cambridge and London: MIT Press. - Yahoo Search Results.”(February 10, 2020).
  • Gan, Christopher, Minsoo Lee, Hua Hwa Au Yong, and Jun Zhang. 2006. “Macroeconomic Variables and Stock Market Interactions: New Zealand Evidence.” Investment Management and Financial Innovations 3(4). https://businessperspectives.org/journals/investment-management-and-financial-innovations/issue-65/macroeconomic-variables-and-stock-market-interactions-new-zealand-evidence (February 11, 2020).
  • Giannone, Domenico, Michele Lenza, and Giorgio Primiceri. 2015. “Prior Selection for Vector Autoregressions.” The Review of Economics and Statistics 97(2): 436–51.
  • Gohar, Raheel, Syed Zulfiqar Ali Shah, and Habib Ahmad. 2018. “Economic Integration and Stock Market Comovement: An Empirical Study Pairing Pakistanâ€TMs Stock Exchange with 21 Other Markets.” Journal of Reviews on Global Economics 7: 28–36.
  • Greenwood-Nimmo, Matthew, Yongcheol Shin, and Till van Treeck. “The Asymmetric ARDL Model with Multiple Unknown Threshold Decompositions: An Application to the Phillips Curve in Canada∗ Preliminary and Incomplete - Do Not Cite without Permission.” : 19.
  • Hajilee, Massomeh, and Omar Al Nasser. 2014. “Exchange Rate Volatility and Stock Market Development in Emerging Economies.” Journal of Post Keynesian Economics 37(1): 163–80.
  • Hamilton, James D. 1983. “Oil and the Macroeconomy since World War II.” Journal of Political Economy 91(2): 228–48.
  • ———. 1996. “This Is What Happened to the Oil Price-Macroeconomy Relationship.” Journal of Monetary Economics 38(2): 215–20.
  • Hassan, M.Kabir, and Atsuyuki Naka. 1996. “Short-Run and Long-Run Dynamic Linkages among International Stock Markets.” International Review of Economics & Finance 5(4): 387–405.
  • Ioannidis, Christos, and Alexandros Kontonikas. 2006. “Monetary Policy and the Stock Market.” : 25.
  • Junttila, Juha, Juha-Pekka Kallunki, Aki Karja, and Minna Martikainen. 2005. “Stock Market Response to Analysts’ Perceptions and Earnings in a Technology-Intensive Environment.” International Review of Financial Analysis 14(1): 77–92.
  • Kim, Sun Bae, and Ramon Moreno. 1994. “Stock Prices and Bank Lending Behavior in Japan.” Economic Review: 31–42.
  • Lee. K S. Ni, and R.A. Ratti. 1995. “Oil Shocks and the Macroeconomy: The Role of Price Variability.” Energy J. 16(4): 39–56.
  • Leigh, L.amin Y. 1996. “‘Stock Market Equilibrium and Macroeconomic Fundamentals.’” International Monetary Fund, Washington,DC. IMF Working Paper WP/97/15.
  • Léon, K. N. 2008. “The Effects of Interest Rates Volatility on Stock Returns and Volatility: Evidence from Korea.” International Research Journal of Finance and Economics 14: 285–90.
  • Litterman, Robert B. 1986. “Forecasting with Bayesian Vector Autoregressions: Five Years of Experience.” Journal of Business & Economic Statistics 4(1): 25–38.
  • Lu, Gülnur Muradog, Kivilcim Metin, and Reha Argac. 2001. “Is There a Long Run Relationship between Stock Returns and Monetary Variables: Evidence from an Emerging Market.” Applied Financial Economics 11(6): 641–49.
  • Lütkepohl, Helmut, and Aleksei Netšunajev. 2018. “The Relation between Monetary Policy and the Stock Market in Europe.” Econometrics 6(3): 36. Marcellino, Massimiliano, Andrea Carriero, and Todd E. Clark. 2012. Real-Time Nowcasting with a Bayesian Mixed Frequency Model with Stochastic Volatility. Federal Reserve Bank of Cleveland. https://ideas.repec.org/p/fip/fedcwp/1227.html (February 10, 2020).
  • McMillan, David G. 2010. “Present Value Model, Bubbles and Returns Predictability: Sector-Level Evidence.” Journal of Business Finance & Accounting 37(5–6): 668–86.
  • Mwaanga, Clement, and Nsama Njebele. 2017. “The Long-Run and Short-Run Relationship between the Exchange Rates and Stock Market Prices.” Journal of Financial Risk Management 06(04): 315–24.
  • Neuhierl, Andreas, and Michael Weber. 2016. Monetary Policy and the Stock Market: Time-Series Evidence. National Bureau of Economic Research. Working Paper. http://www.nber.org/papers/w22831 (February 10, 2020).
  • Ojaghlou, Mortaza. 2019. “Tourism-Led Growth and Risk of the Dutch Disease: Dutch Disease in Turkey.” International Business Research 12(7): 103–20.
  • Patra, Theophano, and Sunil Poshakwale. 2006. “Economic Variables and Stock Market Returns: Evidence from the Athens Stock Exchange.” Applied Financial Economics 16(13): 993–1005.
  • Rahman, Matiur, and Muhammad Mustafa. 2008. “Influences of Money Supply and Oil Price on U.S. Stock Market.” Ratanapakorn, Orawan, and Subhash C. Sharma. 2007. “Dynamic Analysis between the US Stock Returns and the Macroeconomic Variables.” Applied Financial Economics 17(5): 369–77.
  • Ross, Stephen A. 1976. “The Arbitrage Theory of Capital Asset Pricing.” Journal of Economic Theory 13(3): 341–60.
  • Rüffer, Rasmus, and Livio Stracca. “What Is Global Excess Liquidity, and Does It Matter?” : 52.
  • Semmler, Willi. 2006. Asset Prices, Booms and Recessions: Financial Economics from a Dynamic Perspective. 2nd ed. Berlin Heidelberg: Springer-Verlag. https://www.springer.com/gp/book/9783540246961 (February 10, 2020).
  • Shin, Yongcheol, Byungchul Yu, and Matthew Greenwood-Nimmo. 2011. “Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework.” SSRN Electronic Journal. http://www.ssrn.com/abstract=1807745 (February 10, 2020).
  • SOHAIL, NADEEM, and ZAKIR HUSSAIN. 2009. “LONG-RUN AND SHORT-RUN RELATIONSHIP BETWEEN MACROECONOMIC VARIABLES AND STOCK PRICES IN PAKISTAN: The Case of Lahore Stock Exchange.” Pakistan Economic and Social Review 47(2): 183–98.
  • Soumaré, Issouf, and Fulbert Tchana Tchana. 2015. “Causality between FDI and Financial Market Development: Evidence from Emerging Markets.” World Bank Economic Review 29(suppl_1): S205–16.
  • Sousa, João, and Andrea Zaghini. 2008. “Monetary Policy Shocks in the Euro Area and Global Liquidity Spillovers.” International Journal of Finance & Economics 13(3): 205–18.
  • Xu, Jincai. “Interest Rate Uncertainty and Stock Market Volatility.” : 53.
Primary Language en
Subjects Management
Journal Section Original Articles
Authors

Orcid: 0000-0002-9118-9421
Author: Mortaza OJAGHLOU (Primary Author)
Institution: ISTANBUL AYDIN UNIVERSITY
Country: Turkey


Dates

Application Date : March 17, 2020
Acceptance Date : July 13, 2020
Publication Date : December 31, 2020

APA Ojaghlou, M . (2020). Dynamic Effects of Macroeconomic Fundamentals on Stock Market Movements: Evidence from BIST100 . Bulletin of Economic Theory and Analysis , 5 (2) , 17-36 . DOI: 10.25229/beta.705307