A Markov chain analysis for BIST participation index

This study addresses the trend estimation of the participation indices (PARTI) in the Istanbul Stock Exchange (BIST) using Markov chain (MC) theory. PARTI can be regarded as the Participation 50 Index (KAT50) and the Participation 30 Index (KATLM). Since KAT50 has only been calculated since 9th July 2014, there are only a few studies on this index. Therefore, in this study, we examine the PARTI indices. Firstly, we have employed MC method using 520 daily closing values of KATLM, between 1st July 2014 and 29th July 2016. For the KAT50 index, we used 514 daily closing values between 9th July 2014 and 29th July 2016, considering the states of these indices as increasing, decreasing or remaining stable. In order to perform a Markov chain analysis relating to prediction of the future situation, a transition probability matrix was created. Using this matrix, a steady-state analysis of the chain was performed and the future trends of KAT50-KATLM were forecasted successfully. It can be concluded that the results of this study are very helpful for individual and institutional investors’ investment decisions within global economies