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The impact of external sovereign debt and the transmission effect of the US interest rate on Turkey’s equity market

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  • Ahmed Samour
  • Aliya Zhakanova Isiksal
  • Nil Gunsel Resatoglu

Abstract

The main objective of this study is to examine the dynamic impacts of external sovereign debt and the transmission effect of the US interest rate on Turkey’s equity market. Autoregressive Distributed Lag (ARDL) model is used to test the long-run coefficients between the variables. Gregory-Hansen with one structural break (SB), Hatemi-J cointegration tests with two (SB), and the recently developed Bayer-Hanck (BH) combined co-integration tests are used to confirm robustness of the ARDL bounds test. Moreover, the Granger causality test is applied to examine the causality direction among the variables. The results showed empirical evidence that the Turkish equity market was negatively affected by the external sovereign debt. Furthermore, the results provided a strong evidence of the spillover effects of the US interest rate on Turkey’ equity market through the local interest rate and external sovereign debt channels. These findings suggest that the Turkish policy makers are required to design plans to avoid any undesirable impacts of the spillover effects of the external debt and foreign interest rates policies on equity market in order to maintain stability.

Suggested Citation

  • Ahmed Samour & Aliya Zhakanova Isiksal & Nil Gunsel Resatoglu, 2020. "The impact of external sovereign debt and the transmission effect of the US interest rate on Turkey’s equity market," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 29(3), pages 319-333, April.
    • Handle: RePEc:taf:jitecd:v:29:y:2020:i:3:p:319-333
    DOI: 10.1080/09638199.2019.1668047
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    Cited by:

    1. Ahmed Samour, Aliya Zhakanova Isiksal, Turgut Türsoy, 2023. "Effects of the domestic and ECB interest rates on Türkiye's stock market: Empirical evidence from a newly developed combined co-integration and causality analysis," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 20(2), pages 223-238, December.
    2. Ahmed Alhodiry & Husam Rjoub & Ahmed Samour, 2021. "Impact of oil prices, the U.S interest rates on Turkey’s real estate market. New evidence from combined co-integration and bootstrap ARDL tests," PLOS ONE, Public Library of Science, vol. 16(1), pages 1-16, January.

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