An empirical analysis of stock pricing behavior within the BIST Sustainability Index

This study examines investor pricing behavior for companies listed in the BIST Sustainability Index using a Threshold Autoregressive (TAR) model analysis. The primary aim of the research is to analyze stock valuation decisions and pricing patterns related to stocks included in the sustainability index. Based on the findings, policy recommendations will be presented to relevant stakeholders to contribute to a healthier functioning of financial markets. In this study, a Panel TAR model is employed to investigate the relationship between firms' key financial indicators and stock prices under two distinct price regimes. The regime classification is based on whether the logarithmic stock prices fall below or above a certain threshold, and the analysis is conducted using multivariate linear regression models. Financial performance indicators such as the Price/Earnings ratio (P/E), Price-to-Book ratio (P/B), Return on Equity (ROE), Return on Assets (ROA), net income growth, PEG ratio, financial leverage ratio, acid-test ratio, Tobin's Q, and firm size are used as independent variables, while the deposit interest rate is included as a control variable. The analysis results reveal that the evaluation criteria followed by investors in pricing stocks differ significantly depending on the price regime. This indicates that investor behavior is not homogeneous, and that investors rely on different financial indicators in the low-price regime (bear market) and the high-price regime (bull market). According to the findings, indicators such as the P/E ratio, PEG ratio, Tobin's Q, acid-test ratio, and firm size have significant effects in the low-price regime; whereas ROE, ROA, net income growth, and acid-test ratio play a more decisive role in the high-price regime. Notably, some indicators exert opposite effects under different price levels. For example, the Tobin's Q ratio has a positive impact on stock prices in the low-price regime but shows a strong negative effect in the high-price regime. This divergence suggests that indicator sensitivity in investment decision-making is repositioned according to regime shifts. In the low-price regime, investors tend to focus on value-seeking, growth potential, and risk assessment, while in the high-price regime, they adopt a more performance-, efficiency-, and sustainability-oriented approach. The study's findings reveal that investor behavior in sustainability index companies systematically varies based on price levels. These findings imply that corporate executives should structure their financial reporting and investor communication strategies, investors should design their portfolio selection criteria, and regulatory bodies should formulate market policies by considering price-level-based differentiation.