Evaluation of stock market reaction to the inclusion of firms 2016 ise sustainability index

This thesis examines the stock market reaction to the inclusion of firms in 2016 Istanbul Stock Exchange Sustainability Index (ISESI). For that purpose, two types of econometric analysis applied. First analysis is event study methodology. Daily stock returns used for the event study analysis which was started at 4 November 2014 to 29 April 2016. Event date is announcement date at the same time 4 November 2015. As an event window (+2, -2) and (+5, -5) windows chosen. Cumulative Abnormal Returns in this event windows except (+2, -2) event window two firms are not significant. Second analysis is Ordinary Least Square (OLS). We use dummy variable to measure effect of inclusion sustainability index. As a result of the regression, we obtain two kinds of equations. These are full model and reduced model. We use omitted variable bias method to obtain reduced equation. The results of OLS indicates that stock returns are affected by oil prices, interest rates, exchange rate and money supply. Also, results point out that one day deferred stock price is effective in the stock price changes. In relation to the transition to the sustainability index, the results which are obtained from OLS in this study point out that being included in the sustainability index does not make much sense in the stock prices. Keywords: ISESI, Sustainability, Sustainability Index, Event study, OLS, Efficient Market