Essays on participation finance system and stock market analysis

As an alternative model, the participation finance system has recently achieved substantial asset and fund sizes in capital markets and the Turkish banking sector. This model has attracted participants from various market segments and has been examined in numerous theoretical and empirical studies. The search for models and systems resulting from economic and financial failures, which are becoming increasingly evident worldwide, necessitates a review of the conventional approaches and practices. In other words, the mainstream paradigm is changing. Each approach, with different thought systematics, advocates the implementation of a new financial framework. In this context, the first essay examines the changing paradigm of finance within the framework of alternative approaches. Theoretical and practical approaches that have changed the direction of finance have been conceptualized as postmodern finance. A conceptual review is conducted under the headings of ethical, social, and responsible finance, good finance, Islamic finance, humanitarian finance, and alternative finance. This essay also introduces the participation finance system and explains its fundamental principles and practices in the Turkish finance system. In addition, the function of the participation finance system in conventional finance in Türkiye and its future perspectives are evaluated and discussed. The essay concludes although the participation finance system has certain limitations, it is a model compatible with the changing paradigm of finance and has its own characteristics and remarkable components. The second essay presents empirical research on the stock market in a participation finance system. It proposes an alternative weighting strategy based on postmodern portfolio theory using Borsa Istanbul Participation 30 Index stocks. The study includes two optimization processes. The first is a weighting strategy based on Sharpe ratio maximization in accordance with Modern Portfolio Theory. The second approach is based on Sortino ratio maximization in line with Postmodern Portfolio Theory. The Sharpe and Sortino portfolios are constructed using weights and compared in terms of return performance. In addition, equally weighted portfolios and market indices were included in the comparison. Consequently, these techniques are applicable as alternative investment strategies. The third essay presents empirical research on volatility forecasting for participation and conventional indices in Borsa Istanbul. The GARCH, TGARCH, EGARCH, APARCH, and EGARCH-M models were used, model parameters were estimated, and the volatility characteristics of the series were analyzed. In addition, volatility forecasting was conducted for the out-of-sample period. Regression equations were solved to analyze the explanatory power of the models for realized volatility, calculated using intraday five-minute data. The model that best predicts volatility according to R-squared coefficients was found to be the EGARCH model. In addition, the findings indicate important results in favor of the Participation 30 Index. This thesis, which consists of three essays, is expected to contribute to the literature on the participation finance system, both conceptually and empirically. Keywords: Participation finance system, Paradigm shift, Postmodern portfolio theory, Portfolio optimization, Volatility forecasting models, Borsa Istanbul.