THE EFFECT OF THE UNCERTAINTIES OF MONETARY AND ECONOMY POLICIES ON STOCK MARKETS

Abstract

Uncertainties create asymmetric and variable effects in economic and financial decision-making processes. However, empirical findings on how these effects differ depending on market conditions remain to be limited. This paper aims to evaluate the effects of uncertainty on the returns of the Borsa Istanbul (BIST 100) index in a layered manner, using a quantile regression model, in the case of Türkiye. Empirical findings show that both economic policy uncertainty and monetary policy uncertainty have a negative impact on returns during periods of poor market conditions.This result indicates that rising uncertainty increases the risk premium, triggers negative expectations in the market and worsens market conditions.On the other hand, when market returns tend to increase, the impact of uncertainties changes in a positive direction and increasing uncertainties have positive effects on returns. As a result, the findings provided by quantile regression reveal that the effects of uncertainty on financial markets are not static and homogeneous but variable.

Keywords

• Quantile Regression
• Stock Returns
• Uncertanities

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