Analysis of Extreme Dependence Between Istanbul Stock Exchange and Oil Returns

Gozde Unal and Derya Korman

The International Journal of Business and Finance Research, 2012, vol. 6, issue 4, 113-124

Abstract: In this study, the relationship between oil price movements and Turkish stock market is investigated. Given the fact that Turkey is an emerging and oil dependent country, we analyze how the stock market behaves together with the fluctuations in oil prices. The study focuses on extreme observations and uses bivariate extreme value methodology in order to analyze the dependence structure between oil and stock market (ISE100). The residuals of autoregressive integrated moving average (ARIMA) models of stock market index and Brent oil returns are examined by using bivariate extreme value analysis over the period between 1988 and 2011. The overall period studied is analyzed by subdividing the period into two phases. We observe a higher dependence in the second phase (2000-2011), compared to the first phase (1988-1999). Our results show that in the second phase the extremes on the negative tails coincide more commonly compared to the extremes on the positive tails, which is in line with the current literature findings. Our findings suggest diversification opportunities for portfolio managers, as extreme observations in Turkish stock market and oil are asymptotically independent.

Keywords: Bivariate EVT; Stock Market Returns; Oil Prices; ISE (search for similar items in EconPapers)
JEL-codes: C46 C51 C53 F4 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:6:y:2012:i:4:p:113-124

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