The Effects of Economic Policy Uncertainty and Oil Price Shocks on Stock Returns: A Structural VAR Analysis on Türkiye
Fatma ÜnlüIn recent years, the effects of global shocks caused by fluctuations in economic policy uncertainty and oil price fluctuations on financial markets have been among the most frequently discussed topics in the literature and resultantly become the center of attention of researchers and policymakers, especially for fragile economies. This study aims to contribute to the investigation of the effects of global economic policy uncertainty and oil price shocks on stock returns. To this end, the article follows the econometric procedure of structural VAR analysis using Türkiye’s monthly data for the period of 2014:01-2023:06. The study uses the Global Economic Policy Uncertainty Index, the global price of Brent crude oil, the Bursa Istanbul (BIST)-100 Return Index, the Consumer Price Index (CPI)-based real effective exchange rate, and interest rate as its variables. According to the empirical findings obtained from the analysis, a negative relationship exists between global economic policy uncertainty and the BIST-100 Return Index, while a positive relationship exists between the global price of Brent crude oil and the BIST-100 Return Index. However, real exchange rate shocks explain most of the changes in the BIST-100 Return Index. The impact of interest rate changes is also more significant than economic policy uncertainty and oil price shocks. Accordingly, exchange and interest rate changes significantly impact Türkiye’s stock market returns.
Ekonomik Politika Belirsizliği ve Petrol Fiyatı Şoklarının Hisse Senedi Getirileri Üzerindeki Etkileri: Türkiye Üzerine Yapısal VAR Analizi
Fatma ÜnlüSon yıllarda ekonomik politika belirsizliğindeki ve petrol fiyatındaki dalgalanmaların yol açtığı küresel şokların finansal piyasalar üzerinde yarattığı etkiler literatürde sıklıkla tartışılan konulardan birisidir. Özellikle kırılgan ekonomiler açısından hem araştırmacıların hem de politika yapıcıların ilgi odağı haline gelmiştir. Bu çalışmada, küresel ekonomik politika belirsizliği ve petrol fiyatı şoklarının hisse senedi getirileri üzerindeki etkilerinin araştırılmasına katkı sağlamak amaçlanmıştır. Bu doğrultuda, Türkiye’nin 2014:01-2023:06 dönemine ait aylık verileri kullanılarak yapısal VAR analizine ilişkin ekonometrik prosedür takip edilmiştir. Değişken olarak ise küresel ekonomik politika belirsizliği endeksi, Brent ham petrolün küresel fiyatı, BIST-100 Getiri Endeksi, TÜFE bazlı reel efektif döviz kuru ve faiz oranı kullanılmıştır. Analizlerden elde edilen ampirik bulgulara göre, küresel ekonomik politika belirsizliği ve BIST getiri endeksi arasında negatif yönlü bir ilişki vardır. Petrol fiyatı değişkeni ile BIST getiri endeksi arasındaki ilişkinin yönü ise pozitiftir. Bununla birlikte, BIST hisse senedi getirilerindeki değişmelerin büyük kısmı reel döviz kuru şokları tarafından açıklanmaktadır. Faiz oranındaki değişmelerin etkisi de ekonomik politika belirsizliği ve petrol fiyatı şoklarından daha fazladır. Bu doğrultuda, Türkiye’de döviz kuru ve faiz oranındaki değişmelerin borsa getirileri üzerinde önemli derecede etkili olduğu söylenebilir
The effects of uncertainty on macroeconomic variables have been frequently discussed in recent years due to the global uncertainty caused by the 2008 Global Economic Crisis and the COVID-19 pandemic. Global economic policy uncertainty and oil price shocks are interrelated and affect stock returns. When uncertainty is high, oil prices increase, and increases in oil prices negatively affect stock markets and reduce stock returns through such channels as production costs, inflation, investment, consumption, and interest rates. Economic policy uncertainty is the main transmitter in the transmission mechanism of oil price shocks, so it acts as the main transmitter in the relationship between oil price shocks and stock markets. Global economic policy uncertainty and oil price shocks significantly affect both fundamental macroeconomic variables and stock returns. These effects become even more critical for fragile emerging economies and energy-importer countries such as Türkiye. Although many studies have examined the impact of oil price shocks on stock markets, the number of studies that including economic policy uncertainty in this relationship has increased in recent years. The main motivation for the current study is the limited number of studies in the existing literature analyzing the linkages among global economic policy uncertainty, oil price shocks, and stock returns. The second motivation is that no study has investigated the relationships among these variables for Türkiye using structural VAR analysis. Based on these motivations, this study aims to contribute to the investigation of the effects of global economic policy uncertainty and oil price shocks on stock returns in Türkiye.
The study analyzes the effects of oil price shocks on stock returns under global economic policy uncertainty for Türkiye using monthly data for the period of 2014:01-2023:06. The variables used in the analysis are the Global Economic Policy Uncertainty Index, the global price of Brent crude oil, the Bursa Istanbul (BIST)-100 Return Index, the Consumer Price Index (CPI)-based real effective exchange rate, and interest rate. The study has applied the augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests to the relevant series to investigate their stationarity. The results of both unit root tests provide consistent empirical evidence that the series are stationary in their first differences. The study then constructs the vector auto-regression (VAR) model, with the results from the Lagrange multiplier (LM) test to determine whether an autocorrelation problem is present among the error terms, from the White test to detect the problem of changing variance, and from the Jarque-Bera normality test indicating the specified model to be well-structured.
After providing the preconditions for the structural VAR (SVAR) analysis, the long-run multiplier matrix of the model is obtained to interpret the signs of the variables before the impulse-response analysis. Accordingly, a negative relationship exists between global economic policy uncertainty and the BIST-100 Return Index. According to the variance decomposition analysis, 1.79% of the changes in the BIST-100 Return Index at the end of the period are explained by shocks in global economic policy uncertainty, 4% by shocks in oil prices, 12.3% by interest rates, and 55.8% by changes in the real exchange rate. These results suggest that changes in the BIST-100 Return Index in Türkiye are explained mainly by shocks to the exchange rate. The results indicate global economic policy uncertainty and oil price shocks to have relatively less of a shock. BIST-100 stock returns in Türkiye are affected by global economic policy uncertainty, oil price shocks, real exchange rates, and interest rates. However, real exchange rate shocks explain most of the changes in BIST-100 stock returns. The impact of interest rate changes is also more significant than economic policy uncertainty and oil price shocks. Accordingly, exchange rate and interest rate policy can be claimed to significantly impact the stock market in Türkiye. However, the impact of global economic policy uncertainty and oil price shocks is relatively limited. These results suggest that investors who invest or who will invest in the stock market should closely monitor the exchange and interest rates alongside uncertainty and oil price shocks.
