Determination of the relationship between world energy commodity prices and Borsa Istanbul (BIST) electricity index

Energy commodities are indispensable inputs of the production process. So far, most of the electricity used by humanity has been produced from fossil fuel-based energy commodities such as oil, coal and natural gas. As of 2018, the share of fossil fuels in electricity production is 64% in the world and around %67,6 in Turkey. In this study, the causality relationships between the returns of the fossil fuels, which are oil, natural gas and coal, and both the return of Borsa Istanbul (BIST) Electricity index which was adjusted for market interest rates and the BIST Electricity index which was unadjusted for market interest rates were investigated in Turkey, which has a high dependence on foreign fossil energy commodities. In addition, since the US dollar is used in trading these commodities, the TL / US dollar exchange rate is included in the analysis to see the effects of exchange rate changes. The BIST 100 index returns are also included in the analysis to determine whether the commodity price changes are sector-specific. To our knowledge, this research bears the distinction of being the first study examining the impact of the world oil, natural gas and coal prices on BIST Electricity index returns in Turkey. The period of 17 May 2010 - 29 May 2020 was determined as the analysis period, and the causality relationship between variables was analyzed using the Granger causality testing method. As a consequence, it has been determined that there is a mutual causality relationship between the changes in oil and coal prices and the return of the BIST Electricity Index, and that there is no causality relationship between the changes in natural gas prices and the returns of neither BIST 100 nor BIST Electricity Index.