Investigating the efficiency of airline stock returns in Turkey

Do stock prices reflect all information in the market as the efficient market theory states? Or are there some economic factors that significantly determine stock prices? This empirical study examines the efficient market theory in the airline industry in Turkey. Using daily data of Turkish Airlines and Pegasus Airlines stock prices, and Turkish lira exchange rates from Yahoo Finance, we employed a series of parsimonious GARCH (1;1) models to examine whether exchange rates have significant deterministic effects on Turkish Airlines and Pegasus Airlines' stock returns. We also designed distinct GARCH models including daily, monthly and quarterly dummy variables to test for the existence of calendar anomalies. Our empirical findings indicate that exchange rates significantly affect the mean stock returns and their volatilities. Our calendar anomaly analysis also indicates that different days, months and quarters have significantly different impacts on the mean and volatility of stock returns, thereby corroborating the key finding that Turkish Airlines and Pegasus Airlines' stock returns are not efficient.