The Impacts of Foreign Portfolio Flows and Monetary Policy Responses on Stock Markets by Considering COVID-19 Pandemic: Evidence from Turkey

Borsa Istanbul Review 22-1 (2022) 12-19

8 Pages Posted: 6 Jul 2021 Last revised: 14 Feb 2022

See all articles by Mustafa Tevfik Kartal

Mustafa Tevfik Kartal

Borsa Istanbul

Hasan Murat Ertugrul

Government of the Republic of Turkey - Undersecretariat of the Treasury

Talat Ulussever

Gulf University for Science and Technology (GUST)

Date Written: February 11, 2022

Abstract

This study researches the impacts of foreign portfolio flows (proxied by foreign investors’ retention share) and monetary policy responses (proxied by the repurchase interest rate) on Turkey’s stock market index taking the COVID-19 pandemic into consideration. A volatility index, credit default swap spreads, and foreign exchange rates are used as control variables, with a daily dataset between January 2, 2017, and October 20, 2020. After examining the stationarity and nonlinearity characteristics of the variables, we applied a nonlinear autoregressive distributed lag (NARDL) model and then conducted a Markov switching regression (MSR) for a robustness check. The results reveal that both foreign portfolio flows and monetary responses have an important effect on the index, and foreign portfolio flows have a higher effect than monetary responses. Accordingly, the results obtained from the NARDL and MSR models are robust and consistent.

Keywords: COVID-19 pandemic; Foreign Portfolio Flows; Monetary Policy Responses; MSR; NARDL; Stock Markets; Turkey

JEL Classification: C22; E44; E58

Suggested Citation

Kartal, Mustafa Tevfik and Ertugrul, Hasan Murat and Ulussever, Talat, The Impacts of Foreign Portfolio Flows and Monetary Policy Responses on Stock Markets by Considering COVID-19 Pandemic: Evidence from Turkey (February 11, 2022). Borsa Istanbul Review 22-1 (2022) 12-19, Available at SSRN: https://ssrn.com/abstract=3877934 or http://dx.doi.org/10.2139/ssrn.3877934

Mustafa Tevfik Kartal (Contact Author)

Borsa Istanbul ( email )

Reşitpaşa Mah. Borsa İstanbul Cad. No: 4
Borsa İstanbul Cad. No: 4
Istanbul, 34467
Turkey

Hasan Murat Ertugrul

Government of the Republic of Turkey - Undersecretariat of the Treasury ( email )

TR-06510 Ankara
Turkey

Talat Ulussever

Gulf University for Science and Technology (GUST) ( email )

Masjid Al Aqsa Street
Mubarak Al-Abdullah
Kuwait

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