The impact of political risk on foreign exchange market: The evidence of Turkey

Political risk is defined as the risk arising from political events and causing the value of an entity's assets or the profitability of its investments to decrease. The political decisions and actions of structures such as political risk, host country administration, other states, international organizations and non-governmental organizations; it is an important issue to investigate because of the possibility of affecting the business's national or international income, assets and investments. In this study, 25 Period June 7, 2015 General Election in Turkey, 26 in the period November 1, 2015 General Election and the impact of the foreign exchange market April 16, 2017 Presidential Referendum was investigated. The election dates were analyzed on the day of the event by USD / TL, EURO / TL and Basket Exchange data and the effect of political elections on the foreign exchange market. As a result of the analysis, it is seen that the cumulative abnormal return on the foreign exchange market fell after the general election on June 7, 2015, the cumulative abnormal return on the foreign exchange market after the November 1, 2015 election due to the failure to establish the coalition government continued in the normal course within 15 days after the election. This can be said to be the effect of the political risk perception created by the coalition decision in the contrary, and the short-term deterioration of the economic and monetary policy of two separate political elections in the country. Before and after the Presidential Referendum, it was observed that there was a volatility structure in the foreign exchange market with cumulative abnormal returns. It can be said that the perception of the risk created by the changes that the new system will bring about as a result of this referendum in effect is the political risk perception created by the intense debates and rhetoric that the yes decision to be made as a result of this referendum will take place in the country regime change. The result of two election 1 referendum periods, considered as a political risk measure in the study, has affected the foreign exchange market cumulatively and abnormally. The findings are meaningful and specific in terms of financial market participants and policy makers.