OIL PRICES AND BANKING STOCKS NEXUS: EVIDENCE FROM AN OIL-DEPENDENT COUNTRY

We investigate the impact of oil prices on Borsa Istanbul banking index during 2004-2017 and for the periods before and after the 2008 crisis. We especially examine banking stock performances since any significant factor affecting financial institutions, would probably have an impact on the whole economy due to the contagion. Secondly, banking index is the leader index in Borsa Istanbul with 36% of market capitalization of Borsa Istanbul. Moreover, financial institutions in Turkey experienced a significant M&A flow in the last decade, which fosters the interrelationship between foreign and domestic markets. Our sample period is between 2004 and 2016 and we employ Granger-causality and generalized impulse responses. Results reveal that financial and commodity markets are highly integrated and oil is a significant commodity for Turkish market. Furthermore, banking equities seem to benefit from oil price increases and hence one should include banking stocks into their portfolios, when commodity prices are surging