The Relationship between Different Types of Risk and Stock Market Index: Causality Tests for Turkey

Article Information
Journal: Business and Economics Research Journal
Title of Article: The Relationship between Different Types of Risk and Stock Market Index: Causality Tests for Turkey
Author(s): Yuksel Iltas
Volume: 11
Number: 2
Year: 2020
Page: 371-384
ISSN: 2619-9491
DOI Number: 10.20409/berj.2020.255
Abstract
This paper examines the relationship between economic, political, financial and geopolitical country risks and stock prices for the case of Turkey during the period 1999: 01-2014: 12. The causal relationship between risk premiums and BIST 100 index is analyzed through Toda-Yamamoto and Hacker and Hatemi-J (2012) causality tests. According to Toda-Yamamoto causality test’s results, while there is bidirectional causality between economic risk premium and BIST 100 index and between political risk premium and BIST 100 Index, there is no causality from financial risk premium and geopolitical risk premium to BIST 100 Index. According to the result of Hacker and Hatemi-J (2012) bootstrap causality test, while there is bi-directional causality between economic risk premium and BIST 100 index and between political risk premium and BIST 100 Index, there is no causality between financial risk premium and BIST 100 index and between geopolitical risk premium and BIST 100 Index. The results of Hacker and Hatemi-J (2012) bootstrap causality test confirm the results of the Toda-Yamamoto causality test. Causality tests performed in the study indicate the existence of bidirectional causality relationship among economic risk premium based on macroeconomic variables and political risk premium as an indicator of the country’s political environment, and stock prices.

Keywords: Economic Risk, Political Risk, Financial Risk, Stock Prices, BIST100, Causality Tests

JEL Classification: G00, G30, G32

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