The relationship between risk appetite and stock market index returns: An application on BIST

The aim of this thesis study is to reveal the relationship between the risk appetite of Borsa Istanbul (BIST) investors and their stock returns. There are many studies in the literature showing that indicators reflecting the emotions and behaviors of investors are effective variables in explaining stock returns through various indices. However, there are few studies that reveal the relationship between an emotion index and stock returns, especially BIST. In this study, time series analysis of the relationships between risk appetite and stock returns of Borsa Istanbul (BIST) investors was tried to be done by using cointegration, Granger causality tests and Vector Autoregressive Regression (VAR) techniques. As a result of the analysis, a two-way causality relationship was found between the Risk Tendency Index (REKS) and BIST stock market indices. In this case, in the short term, REKS significantly affects BIST indices, and BIST indices affect RESK index significantly. As a result of the analyzes, the hypotheses regarding the bidirectional causality relationship, which are among the initial hypotheses, were statistically supported and accepted. This study, based on the problematic of how decisive indicators based on risk perception (for example, REKS Index) can be in the measurement of investor behavior in financial markets, reveals the short and long-term two-way causality relationship between BIST indices and REKS; It has revealed the role of risk indicators in investment decisions and presented applicable inferences to the literature at the level of methodological diversity and policy.