Financial stress index: Application to Turkish economy

The aim of this thesis study is to develop a market based financial stress index (FSI) for the Turkish economy through determining its conceptual scope. The index developed within the scope of the study is attempted to overlap the well-known crises, business cycles and important events recognized as stress in financial markets. To measure their effects on the markets, and thus to allow to compare the stress intervals high frequency (daily) market data covering up to the last 20-year-period (July 1999- April 2019) are used in order to have an extensive and up-to-date study. The foreign exchance market, the stock exchange market, the long-term credit market and global financial market considered as mechanisms reflecting stress in the developed FSI. As a result of the study in which principal component analysis is used, it is brought out that high index values overlap with the important economical and political events in the Turkish economy. Moreover, the responses of the markets to the recent crisis periods can be compared with the developed FSI.