Exploring volatility, structural breaks, and economic interactions in the turkish stock market

The thesis comprises three empirical studies. Chapter 2 analyzes the impact of exchange rate volatility on sectoral stock volatility by utilizing intraday volatility measures derived from daily data across 27 Borsa Istanbul sectors over a period of 20 years (from April 29, 2003, to April 25, 2023). I critique traditional GARCH models and the application of aggregate data, which may lead to biased results. The findings demonstrate significant sectoral heterogeneities: all sectors are positively influenced by exchange rate volatility, with the basic metal sector being the most responsive, followed by banking and transportation. In contrast, the sports, investment trust, and construction sectors exhibit minimal sensitivity, underscoring the necessity for policymakers to devise sector-specific strategies aimed at stabilizing financial markets. Chapter 3 examines structural breaks in the Istanbul stock market, focusing on the seven largest sectors by market capitalization. I critique traditional breakpoint analysis for overlooking return variance breaks and employ the supMZ test to identify breakpoints in stock returns and the TL/Dollar exchange rate from 2004 to 2023. Key findings reveal simultaneous breakpoints across sectors, particularly in the years linked to major economic events in 2006, 2008, and 2018. Furthermore, more breakpoints were identified in the exchange rate than in sectoral stock prices, likely due to exposure to international events. The analysis indicates that the buy-and-hold strategy surpasses the "in and out" strategy across most sectors and the exchange rate, except for the financial and banking sectors. Chapter 4 takes a macroeconomic perspective, linking the stock market to financial liquidity needs functions (M1 and M2) through Autoregressive Distributed Lag (ARDL) and Granger causality analyses. It reveals that M1 and M2 financial liquidity needs are cointegrated with real stock prices, real income, deposit interest rates, and real exchange rates. The wealth effect from real stock prices significantly affects financial liquidity needs, with M2 being more responsive to stock price fluctuations while M1 remains stable, highlighting the stock market's role in shaping long-term financial liquidity needs and monetary policy implications in Turkey.