Macro factors affecting Istanbul stock exchange

Abstract

Common stock prices fluctuate because of many reasons in Turkey, in this study the effects of macroeconomic factors and alternative investment tools on the istanbul Stock Exchange was analyzed. As macroeconomic factors, inflation rate, money supply, capacity utilization rate and production index were used. Gold prices, foreign exchange rates and treasury bill rates were used as alternative investment tools to common stocks. The relationship between the each individual variable with the ISE Index was investigated. According to these results ; among macroeconomic factors the relationship between the inflation rate and the Index is the highest also, among the alternative investment tools the relationship between the gold prices and I ndex is the highest. When all the variables were taken into account it could be seen that changes in the macroeconomic factors, in inflation, capacity utilization . rate and production index explain the mostly observed variability in the ISE Index. Effects of political events was also analyzed. It was found that important political events affect the ISE Index. While a positive change for Turkey in the political environment has a positive effect on the ISE Index, a negative change or uncertainty has a reverse effect. Lagged values were used to determine the future ISE Index. Wholesale price index was found the most important variable to determine the future ISE Index among the other inflation measures, production index and capacity utilization rate. Factor analysis was done in order to examine the interrelations among the variables. Since all these variables are correlated to each other, according to the results of factor analysis we can explain all these variables in two factors. One is environmental factor the other is company factor. According to the results environmental factors explain the variance in the ISE Index better than the company factors. Although both company and environmental features are important for the determination of the ISE Index, environmental features are much more important.