A STUDY ON EXCHANGE RATE AND STOCK MARKET VOLATILITY AND SHORT-TERM REGULATIONS

Abstract

Purpose- In order to maintain economic stability in Türkiye, new economic regulations are often introduced during periods of economic distress. This study aims to determine the impact of such regulations on price fluctuations. Methodology- The analysis focuses on the volatility in the USD/TRY exchange rate and the BIST100 index in relation to swap limit regulations introduced by the Banking Regulation and Supervision Agency (BDDK) in 2018 and 2020. Volatility was examined before and after the implementation of the regulations using ARCH, GARCH, and TGARCH models. Additionally, F-tests were employed to determine whether the variances before and after the implementation of the regulations were statistically different. Findings- The ARCH and its extended models indicate that volatility in exchange rates increased following the implementation and subsequent easing of the regulations. The F-tests also confirm that there is a significant difference in variance for both the USD/TRY exchange rate and BIST100 index before and after the relevant regulatory changes. Conclusion- Three main conclusions can be drawn from the results. First, short-term regulatory measures swiftly implemented by the BDDK during times of crisis can provide temporary stability, but do not offer long-term solutions. Second, when the process of removing or relaxing these regulations is not carefully planned, markets may experience renewed volatility. Third, ARCH-based models prove to be highly effective and reliable tools for measuring volatility and analyzing the impact of such regulatory measures during periods of financial instability.

Keywords

• ARCH
• price volatility
• economic stability
• BDDK
• BIST100

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