Abstract of Research Paper
Over the past few decades, determining the effects of macroeconomic variables on stock prices and investment decisions has preoccupied the minds of economists. In the literature, there are many empirical studies to disclose the relationship between macroeconomic variables such as interest rate, inflation, exchange rates, money supply etc. and stock prices. However, the direction of causality still remains unresolved in both theory and empirics. In this paper we investigate the causal relationship between stock prices and exchange rates, using data from 23 February 2001 to 11 January 2008 about Turkey. The reason of selecting this period is that exchange rate regime is determined as floating in this period. In this study, national 100, services, financials, industrials, and technology indices are taken as stock price indices. The results of empirical study indicate that there is bidirectional causal relationship between exchange rate and all stock market indices. While the negative causality exists from national 100, services, financials and industrials indices to exchange rate, there is a positive causal relationship from technology indices to exchange rate. On the other hand, negative causal relationship from exchange rate to all stock market indices is determined.
Over the past few decades, determining the effects of macroeconomic variables on stock prices and investment decisions has preoccupied the minds of economists. In the literature, there are many empirical studies to disclose the relationship between macroeconomic variables such as interest rate, inflation, exchange rates, money supply etc. and stock prices. However, the direction of causality still remains unresolved in both theory and empirics. In this paper we investigate the causal relationship between stock prices and exchange rates, using data from 23 February 2001 to 11 January 2008 about Turkey. The reason of selecting this period is that exchange rate regime is determined as floating in this period. In this study, national 100, services, financials, industrials, and technology indices are taken as stock price indices. The results of empirical study indicate that there is bidirectional causal relationship between exchange rate and all stock market indices. While the negative causality exists from national 100, services, financials and industrials indices to exchange rate, there is a positive causal relationship from technology indices to exchange rate. On the other hand, negative causal relationship from exchange rate to all stock market indices is determined.
Published in International Research Journal of Finance and Economics ISSN 1450-2887 Issue 23 (2009)