Abstract:
This paper empirically investigates the dynamic relationship between Turkish stock market and macroeconomic variables, for the period span from January 2002 to December 2013. Specifically, we examined the effect of monetary policy 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 reveals that long-run relationship between whole share price index and the tested macroeconomic variables (IIP, STIN, M2, and EXC) is maintained. Moreover, the findings from error correction term coefficient indicate that Turkish stock market adjusted its previous disequilibrium (due to positive or negative shocks) in one period at an adjustment speed 4.449 percent monthly.
