Cointegration between Turkish capital markets with international capital markets at global market conditions: ISE example

The aim of this study is to determine whether there is any long run relationship between Turkish stock market and the stock markets of USA, Germany, Argentina, Brazil, China, Indonesia, France, South Korea, the Netherlands, the United Kingdom, Switzerland, Japan, Malaysia, Mexico, Singapore, Taiwan, Vienna, Greece. Augmented Dickey-Fuller and Phillips Peron unit root tests, Johansen tests for cointegration, Vector Error Correction Model (VECM), Variance Decomposition and Granger causality test are used. In addition, descriptive statistics and correlation coefficient of the countries are examined before analysis. The monthly country data for periods from January 2000 to October 2012 are obtained from the web sites of finance.yahoo and ISE. This periods are examined January 2000-May 2006 and June 2006-October 2012 as two sub-periods for analysis.The results of analysis that Turkey has a long run cointegration relationship financially with the countries which are examined. In addition, there are double - sided causality between Turkey with five country in first period, there are double - sided causality between Turkey with six country in second period are examined. The markets move same direction remove posibility to obtain an maximum level of returns at a minimum risk level for investors. As a result of financial cointegration that occurs with globalization, chances of portfolio diversification has diminished gradually.Keywords: Financial Cointegration, Stock Markets, International Diversification, Portfolio Investments, ISE.