Comovement and Polarization of Interest Rate and Stock Market in Turkey

Ahmet Duran () and Burhaneddin İzgi̇ ()

BIFEC Book of Abstracts & Proceedings, 2014, vol. 1, issue 2, 130-141

Abstract: It is important to analyze and distinguish the comovement and polarization behaviors for securities in financial markets. In this paper, we examine the comovement and polarization of interest rates and daily returns of BIST - 100 index between 2010 and 2013 in order to understand the corresponding behavioral dynamics. We examine Heston stochastic volatility model which may capture such behaviors and reflect fat-tails and high peaks in the price distributions under various market situations. We present extensive simulations using numerical solutions of the stochastic differential equations. Heston stochastic volatility model predicts that the average logarithmic stock return increases as interest rate rises. Actually, we observe that there are also sufficiently large time intervals where interest rates were decreased and stock prices increased gradually in US stock markets and Borsa Istanbul, unlike the Heston stochastic volatility model suggests.

Keywords: Numerical solutions of stochastic differential equations; Heston model; comovement; polarization; BIST-100. (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bor:bifeca:v:1:y:2014:i:2:p:130-141

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