On the Causality between Stock Prices and Exchange Rates: Evidence from Turkish Financial Market

Problems and Perspectives in Management Volume 8, Issue 1, 2010

9 Pages Posted: 1 Mar 2016 Last revised: 20 Mar 2016

See all articles by Yaşar Köse

Yaşar Köse

Turkish Military Academy

Murat Doganay

Ankara University - Business Administration

Hakan Karabacak

Turkish Ministry of Finance

Date Written: 2011

Abstract

The aim of this paper is to investigate the existence and direction of relationship between stock prices and exchange rates for Turkish financial market. Granger (1969) causality testing methodology was employed to reveal the nature of relationship between the two variables. This work contributes to the existing body of literature in the way that in Turkish financial market, there is a uni-directional causality running from stock prices to exchange rates using the daily observations for the sample period, which runs from February 23, 2001 to November 4, 2009. Also, the model used in this study extends the scope of exchange rate variables including a total of five currencies í US dollar, Euro, Japanese Yen, Pound Sterling, Swiss Franc and two baskets of currencies of Undersecretariat of Foreign Trade of Turkey. This evidence has implications for the policy makers and economic actors to perceive the movements in stock prices as a dynamic determinant, which may affect the success of their exchange rate policies.

Keywords: stock price, exchange rate, Augmented Dickey-Fuller test, Granger causality, Turkey

JEL Classification: F31, C12

Suggested Citation

Köse, Yaşar and Doganay, Murat and Karabacak, Hakan, On the Causality between Stock Prices and Exchange Rates: Evidence from Turkish Financial Market (2011). Problems and Perspectives in Management Volume 8, Issue 1, 2010, Available at SSRN: https://ssrn.com/abstract=2739809

Yaşar Köse

Turkish Military Academy ( email )

Kara Harp Okulu, Çankaya Huzur Park İçi Yolu
Çankaya/Ankara
Ankara, 06420
Turkey

Murat Doganay (Contact Author)

Ankara University - Business Administration ( email )

06590 Ankara
Turkey

Hakan Karabacak

Turkish Ministry of Finance ( email )

Ankara
Turkey

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