EXAMINING RELATIONSHIP BETWEEN COMPOSITE LEADING INDICATORS AND BORSA ISTANBUL SECTOR INDICES

Abstract

The prediction of fluctuations in economic activity has become even more important, especially after the crises experienced in recent years. In order to make such a prediction, economic and financial indicators are needed. The Composite Leading Indicators (BONC) published by Central Bank of the Republic of Turkey is useful in predicting the macroeconomic contraction or expansion.  In this study, it is tested whether there is a relationship between Composite Leading Indicators Index and 12 Borsa Istanbul sector indices returns.  Unit root test results show that sector indices are stationary at the first differences and the BONC is at level.  Thus long term relationship between each sector indices and the BONC is examined by Boundary Test. The findings show that there is a long term and relationship between BONC and all the sector indices in the study. Also it has been determined that positive change in the BONC has a statistically significant and positive effect on XUTEK and XGMYO in the long term. The short term relationship is also found between all sector indices and BONC. In addition, it is determined that increase in BONC affects all sector indices positively in the short term. These results indicated that investors take into account the BONC without distinguishing the sector when investing to stocks and that BONC is an important indicator for stock returns.

Keywords

• Composite leading indicators,Borsa Istanbul,bound test,ARDL models,sector indices

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