Determinants of Stock Returns in Turkey under the Impacts of Capital Inflows and Global Economic Policy Uncertainty

This article investigates the short-run and long-run macroeconomic determinants of the Turkish stock returns under the impact of capital inflows and global economic policy uncertainty by using the ARDL method and the monthly data for the period of 1997:M1 to 2018:M6. The set of macroeconomic variables utilized in the study are the stock market price indexes of Turkey’s BIST100 index (BIST), BIST Financial Index (BISTFIN) and the BIST industrial index (BISTIND), industrial production index (IP), real effective exchange rate (RER), consumer price index (CPI), interest rate (INTR), capital inflows which is the sum of foreign direct and portfolio investment coming to Turkey (FDIPORT) and the Global Economic Policy Uncertainty index (GEPU). The ARDL estimation results reveal that in the long-run the BIST stock returns are positively affected from the changes in IP, RER, CPI and FDIPORT. The effect of the changes in GEPU on the stock returns is negative. The long-run determinants of the BIST stock returns are the changes in IPI, RER, and CPI and the EPU. The effect of the changes in the INTR on the stock returns is insignificant. The impact of the changes in RER on stock returns is significantly positive for the BIST100 and BISTFIN indexes, but has no significant effect on the BISTIND stock returns. The estimation results suggest that the capital flows and global economic policy uncertainty are essential factors for the Turkish stock returns.

Keywords: Economic Policy Uncertainty, ARDL, Stock Returns, Economic Activity, BIST

This article investigates the short-run and long-run macroeconomic determinants of the Turkish stock returns under the impact of capital inflows and global economic policy uncertainty by using the ARDL method and the monthly data for the period of 1997:M1 to 2018:M6. The set of macroeconomic variables utilized in the study are the stock market price indexes of Turkey’s BIST100 index (BIST), BIST Financial Index (BISTFIN) and the BIST industrial index (BISTIND), industrial production index (IP), real effective exchange rate (RER), consumer price index (CPI), interest rate (INTR), capital inflows which is the sum of foreign direct and portfolio investment coming to Turkey (FDIPORT) and the Global Economic Policy Uncertainty index (GEPU). The ARDL estimation results reveal that in the long-run the BIST stock returns are positively affected from the changes in IP, RER, CPI and FDIPORT. The effect of the changes in GEPU on the stock returns is negative. The long-run determinants of the BIST stock returns are the changes in IPI, RER, and CPI and the EPU. The effect of the changes in the INTR on the stock returns is insignificant. The impact of the changes in RER on stock returns is significantly positive for the BIST100 and BISTFIN indexes, but has no significant effect on the BISTIND stock returns. The estimation results suggest that the capital flows and global economic policy uncertainty are essential factors for the Turkish stock returns.

Anahtar Kelimeler: Economic Policy Uncertainty, ARDL, Stock Returns, Economic Activity, BIST