The relationship between risk appetite index and financial investment insturuments

Investors follow the risk factor closely and display an attitude towards risk. Traditional finance theory has tried to explain investors' attitudes towards risk by the fact that individuals are rational. Along with the studies that psychology focuses on investor behavior, the existence of irrationality in the decisions of investors has been observed and behavioral finance theory has begun to take shape in this direction. Investors' willingness to take risks is called risk appetite. As the attitudes of investors towards risk appetite with the effect of globalization affect financial markets, studies in this field have gained importance. In this study, it has been examined whether there is a bidirectional causality relationship between the risk appetite index, which is one of the indicators of investor sentiment, and the variables of BIST-100 index, Gold/Ons and USD/TRY. In the study, frequency domain causality test was applied with the data of January 2008 and December 2021. The findings obtained from the study show that there is a bidirectional causality relationship between the risk appetite index and the Gold/Ounce variable in the short, medium and long term. At the same time, it has been observed that there is a bidirectional causality relationship between the risk appetite index and the USD/TRY variable in the medium and long Dec, except for the short term. However, it has been determined that there is no causality relationship between the risk appetite index and the USD/TRY variable in the short term, and there is only a causality relationship between the USD/TRY variable and the risk appetite index in the short term. Finally, it has been observed that there is a one-way causality relationship from the BIST-100 index to the risk appetite index.Keywords: Risk, Risk Appettite Index, Behavioral Finance, Frequency Domain Causality.