The impact of oil prices to stock market: An application on Borsa Istanbul

In this study, it is aimed to examine the relationship between Brent oil price and stock market with Johansen cointegration method and Granger causality test. For this purpose, daily data on Brent oil price and XU100, XSAN, XULAS, XELTK, XGIDA, XTEKS, XKMYA, XKAĞT, XUTEK, XHOLD XGMYO, XTCRT, XUHIZ indices were used between 02.01.2009 and 19.09.2019. According to the result of Johansen Cointegration test, it has been found that Brent oil price with 5% confidence level and XUTEK, XTEKS, XULAS and XSAN index are acting together in the long term. No long-term relationship was found between other industry indices and Brent oil price. In addition, the Granger causality test was applied to reveal the short-term relationships between the industry indices, where the Brent oil price was addressed. As a result of the application, there is no causal relationship between Brent oil price and XU100, XULAS, XELTK, XGIDA, XTEKS, XKAĞT, XUTEK, XHOLD, XGMYO, XTCRT, XUHIZ indices according to 5% error margin, whereas one way from Brent oil price to XKMYA and XSAN index. it was concluded that causality exists. In addition, the XU100, XHOLD, XUTEK, XTEKS index responded positively to a standard deviation shock in Brent oil price for ten periods. In addition, in the face of a standard deviation shock in Brent oil price, XKAĞT, XTCRT index is in the third period, XGIDA, XKMYA, XSAN index is in the fourth period, XGMYO index is in the second period, XUHIZ index is in the second and third period, XULAS index is in the second and fourth period, XELTK index is in the third and fourth period reacts negatively. However, in general, it can be said that variables affect positively. Although it reacts negatively in the fourth period, it can be said that variables are generally affected positively. At the same time, according to the result of variance decomposition test, it was concluded that 99% of the change in sector indices in error variance is explained with their historical values in general and Brent oil price has a level less than 1%. Keywords: Oil Prices, Stock Market, Variance Decomposition, Causality Analysis, Cointegration Analysis