The role of foreign investors in the Istanbul Stock Exchange

The recent years saw significant increases in international equity flows due to globalization. For instance, if we observe developed countries, it is possible to see the international equity flows amounting to $ 220 billion in 1997 have reached to a record breaking level of approximately $ 1 trillion in 2007. In the developing countries, however, the international equity flows worth $ 200 billion have increased by 100% to approximately $ 400 billion in 2007. As the aforementioned facts suggest, international equity flows is a rising trend in recent years. This fact requires the necessity of thorough analysis and interpretation of the effects of international equity flows to the countries? national economies and capital markets.In addition to direct investments, the capital that is directed to a given country may also be realized by way of portfolio investments. Analysis of the effects of portfolio investments made by foreign investors on market and accurate interpretation of their respective results are of vital importance. For that purpose, various studies have been carried out on Turkish capital markets. However, in most of such studies, either the data frequency has been kept low or the investigation period range has been failed to be determined at sufficient length. Due to the fact that daily data have been employed and the investigation period spans over a long period, the present study thus presents more reliable results.In this study reserving balance and ratio of foreign investors in 51 share certificates that are kept in İMKB 100 Price Index on constant basis between dates 01 January 2004 and 31 July 2008 and the relationship among İMKB 100 Price Index have been examined by using panel data analysis. According to the results gained; there is a positive relationship between the transactions made by foreign investors in stock exchange market and the index change. In other words, the increase in the transactions initiated by foreign investors led to a increase in the index, and the decrease in transactions resulted in decrease in the index. This fact clearly manifests that the portfolio equity flows initiated by foreign investors have been effective on the index.Key Words1.International Equity Flows2.Portfolio Investments3.Foreign Investors4.Istanbul Stock Exchange5.Panel Data Analysis