Exploring the Long-run and Short-run Relationship between Macroeconomic Variables and Stock Prices during the Restructuring Period: Does it Matter in Turkish Market?

Abstract

This paper empirically investigated the dynamic rel ationship between Turkish stock market and macroeconomic variables, for the period span fr om January 2002 to December 2013. Specifically, we examined the effect of monetary po licy changes during the tested period. Dummy variables were added to the model in order to overcome the effect of inflation rate targeting and exchange rate regime change in Turkey . Using VAR model, the result revealed that long-run relationship between share price index and the tested macroeconomic variables index of industrial production (IIP) Shor t-term interest rate (SINT), money supply (M2), and exchange rate (EXC), was maintained. More over, the findings from error correction term coefficient indicated that Turkish stock market adjusted its previous disequilibrium (due to positive or negative shocks) in one period at an adjustment speed of 4.449 percent monthly.