Analyzing the effects of uncertainty on BIST 100 and market contagion with non-linear and asymmetric econometric methods

Uncertainty and contagion have been studied thoroughly in the economics literature however, the indices, data and methods utilized in these studies have made it impractical to be used in country-specific studies and studies with high-frequency data. For this reason, this study uses analog variables to quantify the relationship between the macroeconomic uncertainty in Turkey and the Turkish stock market during the first year of the Covid-19 pandemic. The thesis adopts novel econometric methods such as Shahbaz, Omay and Roubaud (2019) unit root test, non-linear ARDL (Shin et. al., 2013), and Hatemi-J (2012) asymmetric causality test to analyze daily data from 2020. The thesis is organized into two parts; effects of macroeconomic uncertainty on BİST 100, and market contagion. Turkey's CDS rates, US Dollar/Turkish Lira effective exchange rate, and Turkish Lira reference interest rates were used as analog to macroeconomic uncertainty. The contagion model contains BİST 100, CAC 40, DAX 30, Eurostoxx 50, FTSE 100, NASDAQ and S&P 500 indices. The data was first checked for the presence of unit roots using the unit root test developed by Shahbaz, Omay and Roubaud (2019) and the effects of macroeconomic uncertainty analogs were analyzed with restricted constant and restricted trend NARDL frameworks. After the analyses, the causality relationship from the independent variables to BİST 100 index was examined using the Hatemi-J (2012) asymmetric causality test. The results indicate that the macroeconomic uncertainty has significant and asymmetric effects at varying lags and there are causal relationships from independent variables to BİST 100 at different significance levels and directions. The contagion model employed Hatemi-J asymmetric causality test for BİST 100's interactions with other stock markets. These results suggest that a bidirectional causality exists within negative shocks from NASDAQ and S&P 500 to BİST 100 and vice versa.