Country beta in the scope of international capital assets pricing model and the factors which affect Turkey's country beta

The capital flows are increased by globalisation and countries financial systems are fairly closed to each others. This situation causes the integration of economies and creates many investment opportunities for the international investors. They have opportunies to invest not only home country's securities but also different countries' securities. That's why it is important topic the reasons of difference of return investee country for the investors and researchers. This difference caused by investee country's sensitivity to the world capital market, it means that difference caused by country's beta which represents country risk. The aim of this study was to investigate the impact of unexpected components of macroeconomic variables on Turkey's country risk in the period of 1998Q1-2013Q3. In this context, the effects of local and global variables to the Turkey's country risk have been examined by employing Country Beta Approach which developed by Harvey and Zhou (1993), Erb vd. (1996), Bekaert vd. (1996), Gangami vd.(2000), based on International Capital Assets Pricing Model. It was found that both factors had relative impacts on Turkey's country risk. As a result Turkey's country risk was affected by unexpected components of Turkey's inflation, GDP, Turkish Lira's interest rate as local factors and unexpected components of U.S.'s inflation, treasury rate, premium on Euro Dollar deposit rates relative to the U.S. treasury rate and the price of oil as global factors. Keywords: Portfolio management, country risk, country beta model, macroeconomic variable