VOLATILITY STRUCTURE OF STOCK PRICE INDEX AND EXCHANGE RATES: CASUALITY ANALYSIS FOR TURKEY

Volatility in finance is used as a concept of uncertainty, change and fluctuation as well as a measure of risk. Recently, rapid rises and falls of exchange rates and BIST Stock Index unfold the concept of volatility. The purpose of the study is to reveal the volatility structure of Turkish stock exchange market and exchange rates and also to determine the relationship between the stock exchange index and exchange rates. In the studies conducted in the field of finance, there is usually a one-way or two-way relationship between stock markets and exchange rates. However, there is no consensus on the structure of this relationship. The aim of this study is to determine the relationship between stock price index and exchange rates. Two hypothesis will be tested in the study: Is there a cointegration relationship (long‐term equilibrium) and causality between the exchange rate and stock prices in Turkey? ARCH family models which are widely used in literature are tested using BIST 100 index, EURO/TL selling rate and USD/TL selling rate. Results of the study show that there is volatility in all of the series. Furthermore, causality test show that the value of the variables are linked each other