Relation between Real Effective Exchange Rate And IMKB -100 Index (Istanbul Stock Exchange)

Relation between Real Effective Exchange Rate And IMKB -100 Index (Istanbul Stock Exchange)

TOPAL, Yusuf
AKGÜN, Ali

Stock exchange is a market where long-term investment instruments are purchased and sold such as share certificates, bonds etc. Stock exchange market is divided into two; developed and emerging stock markets. Developed stock markets are financial markets with a great depth which display activity in industrialized countries and constitute international financial market. Emerging stock markets are the stock exchange markets with a shallow depth which display activity in developing countries. Istanbul Stock Exchange has a rather important place among these stock exchange markets. Emergence of the new capital markets, increase in financial liberalization and expansion of flexible exchange rate regimes caused an increase in the examination of exchange rate and stock exchange market. Developing economies that gradually abolished control on exchange rate, paved the way for international investments and portfolio diversification. Today, it’s seen that savers basically directs the funds in their hands to three instruments for the purpose of investment. They are interest, foreign exchange and stock exchange market. Investors who are the savers attempts to increase their returns in the maximum rate with the portfolios they constituted from among these three instruments. When the literature is examined, it’s seen that there are many studies which examined relation between interest and stock exchange market from among these financial instruments. Result from these studies is that there is a negative, that is, an inverse relation between stock exchange market indices and interest rates. And purpose of this study is to see whether or not there is any long-term relation between real efefctive exchange rate and IMKB-100 index (Istanbul Stock Exchange), if any, to determine the direction of this relation. In this study, three-month data of real effective exchange rate (REDK) and IMKB-100 index for 1990-2005 periods have been used. Starting point of study is the year 1990. Its reason is to test presence of long term relation between real effective exchange rate (REDK) and IMKB-100 index by using long-term data that we could reach. Data sets used in study are the values of indices and were received from Central Bank Electronic Data Distribution, Republic of Turkey (EVDS). Long-term relation was examined and empirical findings were proved by using Johansen-Juselius co-integration test (JJ). As a result of examination above, it was ensued that ther was a long-term positive relation between real effective exchange rate (REDK) and IMKB-100 index (Istanbul Stock Exchange).

Conference or Workshop Item
PeerReviewed

2009-06

229