The Relationship Between Stock Market Performance and Its Liquidity

This thesis examines the macroeconomic determinants of stock market performance in Turkey during the period 1990-2019. Specifically, it examines the impact of gross domestic product, exchange rate, inflation and stock market liquidity on the performance of Turkish stock market. Currently, while theoretical and empirical literature revealed diverse views on the relationship between each determinant and stock market performance, no studies have been conducted with particular reference to the Turkish stock market given the significant role the Turkish market plays in the world. This thesis enriches existing literature by investigating the macroeconomic determinants of stock market performance in Turkey using the Johansen cointegration and VECM testing procedure. The results find that all our independent variables have a positive long-run impact on Turkish stock market performance. This thesis recommends that Turkish government has to sharpen the public expenditures through further investments. The Government of Turkey must attempt to keep its inflation rates at a stable level. Furthermore, the pivot of this thesis hovered around market liquidity therefore, having “larger capital markets” as well as allowing for “more technological innovation in trading” will contribute to intensification of the market liquidity which in turn can hone the Turkish stock market performance. Keywords: Stock Market Performance, Gross Domestic Product, Inflation, Stock Market Liquidity, Exchange Rate, Turkey.