Volatility in the Turkish Stock Market: an Analysis of Influential Events

Abstract

This study aims to understand the triggers for volatility changes in the Turkish stock market, particularly in the context of the market's increased popularity among local retail investors, despite economic challenges like unstable growth, currency depreciation, and high inflation. Analysis covers the period from January 2009 to January 2023. Changepoint analysis was employed to detect significant changes in the volatility structure of daily market return rates. Events coincident with these identified dates are further investigated to assess their impact. Additionally, conditional volatilities are examined to gauge market sentiment. Findings reveal that events such as central bank policy rate decisions, nationwide political incidents (e.g., the Gezi protests and the 2016 coup attempt), and major global events (like the pandemic and Russia's invasion of Ukraine) coincide with significant shifts in market volatility, typically leading to an increase. Notably, the frequency of the change dates escalated following the announcement of Turkey's new economic model, although many of these dates did not directly align with major events. High inflation and the new economic model appear to negatively impact market volatility. Findings offer valuable insights into the relationship between major events and stock market volatility. This understanding can assist authorities in implementing strategies to mitigate adverse effects and maintain an improved investment environment. It also opens avenues for proactive communication to manage investor expectations more effectively.