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BUSINESS AND ECONOMICS RESEARCH JOURNAL

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Article Information
Journal: Business and Economics Research Journal
Title of Article: The Relationship Between Exchange Rate-Interest Rate and Stock Return in Turkey: An Empirical Analysis
Author(s): Mehmet Şentürk, Engin Dücan
Volume: 5
Number: 3
Year: 2014
Page: 67-80
ISSN: 1309-2448
Abstract
In this study, interest rate and exchange rate dynamics and their impact on stock returns were examined in Turkey between the periods of 1997:01-2013:05 with ADF, PP and KPSS unit root tests, impulse-response and variance decomposition analysis build upon VAR model and Granger causality analysis. Accordingly, exchange rate and interest rates affect stock returns are negative for about three months. Here, interest rate on stock returns, rather than the exchange rate is effective. In other words, while increase the interest rate and exchange rate, stock return are diminishing. However, stock return, are more sensitive to changes in the interest rates relative to exchange rate. In addition, there are unidirectional causality relationships from exchange rate to stock returns and from interest rate to exchange rate.
Keywords: Stock returns, interest rate, exchange rate, VAR, Granger causality
JEL Classification: E44, F31

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