Analysis of the global crisis' effect on Turkey's stock exchange market: A Markov switching model

The 2008 Global Crisis differs from the preceding financial crisis as beginning in developed countries and its occurrence mechanism. The previous and ongoing effects of Global Crisis remind the 1929 Great Depression and are taken as seriously as it.Volatility is an important indicator of stock markets and it is used in early warning systems of crisis. The purpose of this study is to assign the effects of 2008 Global Crisis among Turkey?s stock exchange market in the framework of bear and bull regimes. As representing Turkey?s stock exchange market ISE-100 Index closing prices are analyzed for 02.01.2006-31.01.2012 period by MS-ARMA model. In this study, the periodic transitions between bear and bull regimes and recurring business cycle are analyzed; the relation between ISE-100 Index volatility states and Global Crisis together with Euro Debt Crisis is defined.The empirical results show that, Turkey?s Stock Exchange Market exhibits a two regime structure as bear and bull regimes and bull regime is more dominant. The 2008 Global Crisis increased the volatility of ISE-100 Index and caused regime switching. The results also identify bear regimes during Global Crisis and Euro Debt Crisis. These results indicate the regime shifts in Turkey?s stock exchange market cause different volatility coefficients in the period under discussion. For this reason, these different volatilities should be taken into account to avoid inaccurate interpretations in investment decisions and policy recommendations.