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The Asymmetric Impact of Macroeconomic Shocks on Stock Returns in Turkey: A Nonlinear ARDL Approach

Kassouri Yacouba () and Halil Altintas ()
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Kassouri Yacouba: Erciyes University, Faculty of Economics and Administrative Sciences, Department of Economics, Kayseri, 38039, Turkey.
Halil Altintas: Erciyes University, Faculty of Economics and Administrative Sciences, Department of Economics, Kayseri, 38039, Turkey.

Journal for Economic Forecasting, 2019, issue 2, 98-116

Abstract: Several studies in the finance literature have investigated the impact of macroeconomic variables on stock returns by assuming symmetric adjustments between variables. Our study abandons this assumption by analyzing the potential asymmetric behavior of stock market to macroeconomic variables. Rare studies on Turkey’s financial market account for asymmetry in the relationship between series. Most of the previous studies neglect asymmetry and use traditional linear time series approaches, which may lead the relevant output estimation to be biased. We fill in this empirical gap by exploring the effects of shocks in exchange rate, money supply and interest rate on stock returns through a multivariate nonlinear ARDL model. Using monthly data from January 2003 to May 2017, our empirical results provide evidence in favor of asymmetric cointegration relationships between stock returns-real effective exchange rate nexus, stock returns-interest rate nexus and stock returns-money supply nexus in Turkey. It is empirically shown that stock prices react asymmetrically to the real effective exchange rate changes in the short-run and long-run, while the effects of the changes in interest rate on stock returns are asymmetrical only in the short-run. We find that money supply changes are symmetrically related to stock returns in Turkey. These findings imply that policy makers should take into account asymmetry between selected macroeconomic variables and stock returns when developing policy to prevent financial risks.

Keywords: stock returns; exchange rates; nonlinear ARDL, financial market, money supply, interest rate (search for similar items in EconPapers)
JEL-codes: F31 G15 C32 E4 (search for similar items in EconPapers)
Date: 2019
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