Financial Crisis and Changes in Determinants of Risk and Return: An Empirical Investigation of an Emerging Market (ISE)
30 Pages Posted: 17 Jul 2015
Date Written: 1999
This paper examines how determinants of volatility and stock returns change with financial crisis. The contributions of the paper are twofold. First, using a GARCH-M framework, risk and return are jointly modeled by using macroeconomic variables both in the variance and the mean equations. The conditional variance equation is specified by including macro-economic variables, a relevant information set for emerging economies, that is often overlooked in various GARCH specifications. Second, determinants of risk and return are investigated before during and after a major financial crisis at ISE. We show that, both the determinants of risk and the risk-return relationship change as the economy switches from one regime to the other.
Keywords: emerging; financial crisis; GARCH-M; Istanbul Stock Exchange; macroeconomic variables; risk; stock returns
JEL Classification: G1,G2,C5
Suggested Citation: Suggested Citation