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Interaction Between Stock Exchange And Interest Rate in Turkey: A Hidden Cointegration and Asymmetric Causality Analysis

Author

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  • Onur Şeyranlıoğlu

    (Giresun University, Faculty of Economics and Administrative Sciences, Department of Business Administration, Giresun, Türkiye)

  • Çağlar Sözen

    (Giresun University, Görele School of Applied Sciences, Department of Finance and Banking, Giresun, Türkiye)

  • Ferhat İspiroğlu

    (Giresun University, Görele School of Applied Sciences, Department of Logistics Management, Giresun, Türkiye)

Abstract

This study reveals the relationship between stock markets and interest rates. In this study, the Borsa Istanbul-100 Index (BIST-100) is used to represent the stock market, and the Turkish Lira Overnight Reference Rate (TLREF) is used to represent the interest rate. To investigate the relationship between the series, daily data between 28.12.2018- 20.10.2022 are discussed. In the analysis, the traditional co-integration tests of Engle and Granger (1987) and Johansen (1988) were used to determine the long-term relationships between the series. A long-term relationship could not be detected using the traditional co-integration test. Therefore, Granger and Yoon (2002) and Hatemi and Irandoust (2012) conducted hidden co-integration tests. The series is decomposed into positive and negative components to apply the hidden co-integration analysis. As a result of the Granger and Yoon (2002) test, a long-term relationship could not be determined between the series; As a result of the Hatemi and Irandoust (2012) test, it was observed that the cumulative positive shocks of the BIST-100 series and the positive and negative cumulative shocks of the TLREF series were associated in the long term. Hatemi-J (2012) investigated the causality relations between the series decomposed into positive and negative shocks with asymmetric causality analysis.

Suggested Citation

  • Onur Şeyranlıoğlu & Çağlar Sözen & Ferhat İspiroğlu, 2024. "Interaction Between Stock Exchange And Interest Rate in Turkey: A Hidden Cointegration and Asymmetric Causality Analysis," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul Journal of Economics-Istanbul Iktisat Dergisi, vol. 0(40), pages 22-34, June.
    • Handle: RePEc:ijs:journl:v:0:y:2024:i:40:p:22-34
    DOI: 10.26650/ekoist.2024.40.1261338
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