The Relationship of Exchange Rate and Oil Price Volatilities with Stock Returns: Evidence from Borsa Istanbul Sector Indexes
Buket Altınöz, Alican UmutThe aim of this study is to investigate the effects of volatility in exchange rates (USD and EURO) on the BİST 100 and 23 sub-sector indexes in Borsa Istanbul using monthly data from January 2008 to April 2021. For this purpose, long-term coefficients for each model were investigated using the fully-modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) estimators after determining the long-term relationships among the variables with the Johansen cointegration test. The use of these methods for the first time and adoption of a current data set in this way constitute this study’s contribution to literature. The study reached results that show an increase in the USD to negatively affect the stock returns for all sectors, while the Euro’s coefficient was statistically insignificant in all other models. When examining the effect of oil prices on sector indices, this coefficient is positive for most sectors, and statistically significant for a limited number of sectors. However, oil prices are understood to have a smaller positive effect than the negative effect from changes in the USD exchange rate.
Döviz Kuru ve Petrol Fiyatlarındaki Dalgalanmaların Hisse Senedi Getirileri İle İlişkisi: Borsa İstanbul Sektör Endeksleri İçin Bir Uygulama
Buket Altınöz, Alican UmutBu çalışmanın amacı dolar ve euro olmak üzere döviz kurlarındaki dalgalanmalar ve petrol fiyatlarındaki oynaklığın BİST 100 ve Borsa İstanbul’da yer alan 23 alt sektör endeksi üzerindeki etkisini 2008:01-2021:04 aylık veriler kullanarak araştırmaktır. Bu amaçla değişkenler arasındaki uzun dönemli ilişkilerin varlığı Johansen eşbütünleşme analizi ile tespit edildikten sonra, uzun dönemli katsayılar her bir model için Tam Uyarlanmış En Küçük Kareler (Fully-Modified Ordinary Least Squares-FMOLS ) ve Dinamik En Küçük Kareler (Dynamic Ordinary Least Squares-DOLS) tahmincileri kullanılarak elde edilmiştir. Böylece, söz konusu yöntemlerin konu kapsamında ilk defa kullanılmış olması ve güncel bir veri setinin benimsenmesi çalışmanın literatüre katkısını oluşturmaktadır. Ulaşılan sonuçlar dolardaki bir artışın tüm sektörlere ait hisse senedi getirilerini olumsuz yönde etkilediğini ortaya koymuştur. Euro kuruna ait katsayı tüm modellerde istatistiksel olarak anlamsızdır. Petrol fiyatlarının sektör endeksleri üzerindeki etkisi incelendiğinde, çoğu sektör için bu katsayı pozitifken, sınırlı sayıda sektörde istatistiksel olarak anlamlıdır. Ancak petrol fiyatlarının pozitif etkisinin dolar kurundaki değişmelerin negatif etkisinden daha küçük olduğu anlaşılmıştır.
Exchange rates are one of the main financial and economic factors affecting stock value and cash flows. Fluctuations in exchange rates play an important role in the decision investors make while evaluating investment opportunities. The use of exchange rates as an important indicator in investors’ investment decisions is related to the reflections the changes in exchange rates have on companies. Losses resulting from the exchange rate risk companies face will increase their costs and decrease their profitability. On the other hand, companies that can manage exchange rate risk and use fluctuations in currency will be positively affected by changes in exchange rates. In the theoretical framework, changes in oil prices are considered to be one factor affecting stock market returns, the reason being that stocks equal the discounted sum of expected future cash flows. These cash flows are greatly affected by the macroeconomic events that oil shocks can affect. Thus, fluctuations in oil prices can affect stock returns. In addition, oil as a primary energy source is the one of the most important inputs in many sectors. Therefore, increases in oil prices also mean an increase in costs and reduction in company profitability, and thus a reduction in their stock returns. The study additionally researched the effect these fluctuations have on the BIST 100 Index, which represents the Turkish stock market. Therefore, exchange rates and oil prices have been researched both on a sectoral basis and in terms of foreign currency.
The study aims to investigate the effects of volatility in exchange rates (USD and EURO) on BIST 100 and 23 sub-sector indexes (i.e., transportation, banking, industry, holding and investment, information technology, food beverage, nonmetal mineral product, real estate invest trusts, basic metal, electricity, financials, services, chem/petrol/plastic, leasing factoring, metal products machinery, insurance, sports, technology, textile/leather, telecommunication, wholesale and retail trade, tourism, wood paper printing) from Borsa Istanbul using monthly data for the years 2008-2021. For this purpose, the long-term coefficient for each model was investigated using the fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) estimators after determining the long-term relationships among the variables with the Johansen cointegration test.
According to the analysis results, the dollar (USD) was observed to have a negative effect on all sectors indices. On the other hand, while the coefficient for future transactions of oil prices is positive for most sectors, BIST 100, the coefficient was statistically significant for the industry, holding and investment, food beverage, non-metal mineral product, real estate investment trust, basic metal, financials, chem petrol plastic, metal products machinery, insurance, textile leather and tourism sectors. While an increase in the Euro exchange rate has an increasing effect on index returns only in the transportation, basic metal, electricity, services, and sports sectors, all other models are statistically insignificant.
The main conclusion reached from the findings is that the nominal dollar rate is an important cost element for each sector. This result confirms that both BIST 100 companies as well as manufacturing companies operating in each sub-sector in particular feel exchange rate increases more intensely in Turkiye. From the point of view of imports, paying for goods coming into the country in foreign currency is accompanied by increased costs. In addition, the dependence of exporting companies on imports of intermediate goods suffers from increases in exchange rates through the increased input costs. On the other hand, the results show the negative effect from the USD exchange rate to be significant in the banking sector. This situation is known to have several causes. Accordingly, an increase in the exchange rate will first lead to a decrease in the total capital value of the banks, followed by a decline in banks’ net equity growth rates. This increase in capital costs will lead to a decrease in profitability. In addition, the increase in interest rates due to increases in exchange rates revealed the banks’ interest income to decrease. Although the effects from the dollar exchange rate at first glance are seen on the real sector, especially through imports and exports, the effects on the financial sector are more permanent and signal an exchange rateinterest spiral, which will inevitably spread to the real sector in the following stage.
