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Symmetrical and Asymmetrical Relationship Between Exchange Rate and Stock Exchange Index Return Volatilities in Turkey

Omer Ozcicek

Istanbul Stock Exchange Review, 2007, vol. 10, issue 37, 1-12

Abstract: The recent increase in financial market liberalizations has increased the foreign capital flow to stock markets. As a consequence, the relationship between the exchange rate and the stock price is being taken more seriously. Theoretically, the change in exchange rate could affect stock prices or developments in stock market could affect the exchange rate. A different approach to this subject is to investigate the relationship between volatilities. This study shows that in Turkey this relationship is both ways and is not affected by foreign capital flow. Furthermore, the relationship is asymmetric. The effect shows itself usually under unfavorable circumstances, when stock prices drop or exchange rate increases.

Date: 2007
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