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The Relationship Between the Stock Market Volatility, Liquidity, Exchange Rate Return, and Stock Return During the COVID-19 Period: The case of the BIST 100 Index

Year 2023, Volume: 7 Issue: 1, 121 - 135, 26.06.2023

Emre Bulut Ahmed İhsan Şimşek

https://doi.org/10.33399/biibfad.1222386

Abstract

The COVID-19 Pandemic, emerged in China at the end of 2019, negatively affected many sectors on global scale. This study examined the period between March 11, 2020, when the first case was seen in Turkey, and May 23, 2022, when the pandemic measures were largely lifted. The study aims to research the relationship between stock exchange return, stock exchange volatility, liquidity, and exchange rate return; and to research the movement characteristics of selected variables in different regimes by using Markov Switching Method during the COVID-19 period. The results showed a negative correlation between the BIST-100 Index Return of Borsa Istanbul (BIST) and volatility and exchange rate returns. Simultaneously there is a positive correlation between the BIST-100 Index Return and liquidity. Furthermore, it has been determined that the data movements in the examined period occurred within the framework of two different regimes. It has been observed that the probability of the BIST-100 Index Return, volatility, and exchange rate returns to remain in the same regime is high, and the probability of switching from one regime to another is relatively low.

Keywords

Volatility exchange rate BIST stock return emerging markets

References

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COVİD-19 Döneminde Hisse Senedi Volatilitesi, Likidite, Döviz Kuru Getirisi Ve Hisse Senedi Getirisi Arasindaki İlişki: BİST-100 Örneği

Year 2023, Volume: 7 Issue: 1, 121 - 135, 26.06.2023

Emre Bulut Ahmed İhsan Şimşek

https://doi.org/10.33399/biibfad.1222386

Abstract

2019 yılı sonunda Çin'de ortaya çıkan COVID-19 Pandemisi'nin küresel ölçekte pekçok sektör üzerinde olumsuz etkisi olmuştur. Bu çalışmada, Türkiye'de ilk COVID-19 vakasının görüldüğü 11 Mart 2020 ile salgın tedbirlerinin büyük ölçüde kaldırıldığı 23 Mayıs 2022 tarihleri arasındaki zaman dilimi incelenmiştir. Çalışma kapsamında, Markov Switching Yöntemi kullanılarak Borsa İstanbul’daki hisse senedi getirileri ile likidite, volatilite ve döviz kuru getirileri arasındaki ilişki incelenmiştir. Çalışmanın amacı, COVID-19 döneminde borsa getirisi, borsa oynaklığı, likidite ile döviz kuru getirisi arasındaki ilişkiyi ve seçilen değişkenlerin farklı ekonomik trendlerdeki hareket özelliklerini araştırmaktır. Sonuçlar, Borsa İstanbul’da (BIST) işlem gören BIST-100 endeks getirisi ile volatilite ve döviz kuru getirisi arasında negative yönlü bir korelasyon olduğunu göstermiştir. Aynı zamanda BIST-100 endeks getirisi ile likidite arasında pozitif yönlü bir korelasyon bulunmuştur. Ayrıca incelenen dönemde verilerin hareketlerinin iki farklı rejim çerçevesinde gerçekleştiği tespit edilmiştir. BIST-100 endeks getirisi, volatilite ve döviz kuru getirilerinin aynı rejimde kalma olasılığının yüksek, bir rejimden diğerine geçme olasılığının ise görece düşük olduğu görülmüştür.

Keywords

Volatilite döviz kuru BİST hisse senedi getirisi gelişmekte olan piyasalar

References

  • Acar, B. M., & Çürük, C. (2016). Effect of foreign exchange rate changes to the stock returns: an application on the istanbul stock exchange 100 index. The Journal of Accounting and Finance, 70, 143-156.
  • Ahmed, W. M., & Sleem, M. (2022). Time-frequency moment interdependence of equity, oil, and gold markets during the COVID-19 pandemic. Cogent Economics and Finance, 10(1), 2085292.
  • Albulescu, C. T. (2021). COVID-19 and the United States financial markets’ volatility. Finance Research Letters, 38, 101699.
  • Al-Maadid, A., Alhazbi, S., & Al-Thelaya, K. (2022). Using machine learning to analyze the impact of coronavirus pandemic news on the stock markets in GCC countries. Research in International Business and Finance, 61, 101667.
  • Almautiri, H. A. (2022). COVID-19 and Its impact on the financial performance of Kuwaiti Banks: A comparative study between conventional and Islamic banks. The Journal of Asian Finance, Economics and Business, 9(1), 249-257.
  • Assefa, T. A., & Mollick, A. V. (2014). African Stock Market Returns and Liquidity Premia. Journal of International Financial Markets, Institutions and Money, 32, 325-341
  • Baek, S., Mohanty, S. K., & Glambosky, M. (2020). COVID-19 and stock market volatility: An industry level analysis. Finance Research Letters, 37, 101748.
  • Baker, S. R., Bloom, N., Davis, S. J., Kost, K. J., Sammon, M. C., & Viratyosin, T. (2020). The unprecedented stock market impact of COVID-19. National Bureau of economic research.
  • Bakry, W., Kavalmthara, P. J., Saverimuttu, V., Liu, Y., & Cyril, S. (2022). Response of stock market volatility to COVID-19 announcements and stringency measures: A comparison of developed and emerging markets. Finance research letters, 46, 102350.
  • Batten, J. A., & Vo, X. V. (2014). Liquidity and return relationships in an emerging market. Emerging Markets Finance and Trade, 50(1), 5-21.
  • Berke, B. (2012). Exchange rate and IMKB100 Index R-relationship: A new test. Journal of Public Finance, 163, 243-257
  • Bhattacharya, S. N., Bhattacharya, M. & Basu, S. (2019). Stock market and its liquidity: evidence from ARDL bound testing approach in the indian context”, Cogent Economics and Finance, 7(1), 1586297.
  • Bissoondoyal-Bheenick, E., Do, H., Hu, X., & Zhong, A. (2021). Learning from SARS: Return and volatility connectedness in COVID-19. Finance research letters, 41, 101796.
  • Boloupremo, T. (2020). Stock market liquidity and firm performance in the Nigerian Stock Exchange. International Journal of Commerce and Finance, 6(1), 31-40
  • Brana, S., & Prat, S. (2016). The effects of global excess liquidity on emerging stock market returns: Evidence from a panel threshold model. Economic Modelling, 52, 26-34.
  • Cardillo, G., Bendinelli, E., & Torluccio, G. (2022). COVID‐19, ESG investing, and the resilience of more sustainable stocks: Evidence from European firms. Business Strategy and the Environment.
  • Carr, P., & Wu, L. (2017). Leverage effect, volatility feedback and self-exciting market disruptions. Journal of Finance and Quantitative Analysis, 52(5), 2119-2156
  • Chandra, A., & Thenmozhi, M. (2015). On asymmetric relationship of India volatility index (India VIX) with stock market return and risk management. Decision, 42(1), 33-55.
  • Chang, Y. Y., Faff, R., & Hwang, C. Y. (2010). Liquidity and stock returns in Japan: New evidence. Pacific-Basin Finance Journal, 18(1), 90-115.
  • Chiang, T. C., & Zheng, D. (2015). Liquidity and stock returns: Evidence from international markets. Global Finance Journal, 27, 73-97
  • Chkili, W., & Nguyen, D. K. (2014). Exchange rate movements and stock market returns in a regime-switching environment: Evidence from BRICS countries. Research in International Business and Finance, 31, 46-56
  • Christopoulos, A. G., Kalantonis, P., Katsampoxakis, I., & Vergos, K. (2021). COVID-19 and the energy price volatility. Energies, 14(20), 6496.
  • Corbet, S., Hou, Y. G., Hu, Y., & Oxley, L. (2021). Volatility spillovers during market supply shocks: the case of negative oil prices. Resources Policy, 74, 102357.
  • Dahmene, M., Boughrara, A., & Slim, S. (2021), Nonlinearity in stock returns: Do risk aversion, investor sentimentand, monetary policy shocks matter?”, International Review of Economics and Finance, 71, 676-699
  • Díaz, F., Henríquez, P. A., & Winkelried, D. (2022). Stock market volatility and the COVID-19 reproductive number. Research in International Business and Finance, 59, 101517.
  • Dimitriou, D., & Simos, T. (2011). The relationship between stock returns and volatility in the seventeen largest international stock markets: A semi-parametric approach. Modern Economy. 02. 10.4236/me.2011.21001.
  • Dinh, M. T. H. (2017). The returns, risk and liquidity relationship in high frequency trading: Evidence from Oslo Stock Market”, Research in International Business and Finance, 39, 30- 40.
  • Eichenbaum, M. S., Rebelo, S., & Trabandt, M. (2021). The macroeconomics of epidemics. The Review of Financial Studies, 34(11), 5149-5187.
  • Enders, W. (2014), Applied econometric time series, 4th Edition. New York, John Wiley.
  • Engelhardt, N., Krause, M., Neukirchen, D., & Posch, P. N. (2021). Trust and stock market volatility during the COVID-19 crisis. Finance Research Letters, 38, 101873.
  • Erdoğan, S., Gedikli, A., & Çevik, E. İ. (2020) Volatility spillover effects between Islamic stock markets and exchange rates: Evidence from three emerging markets”, Borsa Istanbul Review, 20(4), 322-333.
  • Feng, G. F., Yang, H. C., Gong, Q., & Chang, C. P. (2021). What is the exchange rate volatility response to COVID-19 and government interventions?. Economic Analysis and Policy, 69, 705-719.
  • Geng, X., & Guo, K. (2022). The spillover effect of VIX and oil price on the exchange rate volatility among Belt and Road countries. Procedia Computer Science, 199, 765-772.
  • Goldfeld, S. M., & Quant, E. R. (1973). A Markov model for switching regressions. Journal of Econometrics, 1, 3-16.
  • Hamilton, J. D., (1989). A new approach to the economic analysis of nonstationary time series and business cycle. Econometrica, 57(2), 357-384.
  • Handoyo, R. D., Ibrahim, K. H., & Indrawan, F. Y. (2022). Stock Returns response to internal and external shocks during the COVID-19 Pandemic in Indonesia: A comparison study. Industrial Engineering and Management Systems, 21(1), 85-109.
  • Haroon, O., Ali, M., Khan, A., Khattak, M. A., & Rizvi, S. A. R. (2021). Financial market risks during the COVID-19 Pandemic. Emerging Markets Finance and Trade, 57(8), 2407-2414.
  • Hartian, K. R., & Sitorus, R. E. (2015). Liquidity and Returns: Evidences from stock indexes around the world. Asian Economic and Financial Review, 5(1), 33-45
  • Honarmandi, Z., & Zarei, S. (2022). How Does COVID-19 affect the volatility spillover between the exchange rate and the export-oriented businesses in Iran?. Global Business Review, 09721509211060616.
  • Hong, H., Bian, Z., & Lee, C. C. (2021). COVID-19 and instability of stock market performance: evidence from the US. Financial Innovation, 7(1), 1-18.
  • Hoshikawa, T., & Yoshimi, T. (2021). The Effect of the COVID‐19 Pandemic on South Korea's Stock Market and Exchange Rate. The Developing Economies, 59(2), 206-222.
  • Izzeldin, M., Muradoğlu, Y. G., Pappas, V., & Sivaprasad, S. (2021). The impact of Covid-19 on G7 stock markets volatility: Evidence from a ST-HAR model. International Review of Financial Analysis, 74, 101671.
  • Jin, X. (2017). Time-varying return-volatility relation in international stock markets. International Review of Economics and Finance, 51, 157-173.
  • Jun, S.-G., Marathe, A., & Shawky, H. A. (2003). Liquidity and stock returns in emerging equity markets. Emerging Markets Review, 4, 1-24
  • Just, M., & Echaust, K. (2020). Stock market returns, volatility, correlation and liquidity during the COVID-19 crisis: Evidence from the Markov switching approach. Finance Research Letters, 37, 101775.
  • Karabıyık, L., & Anbar, A. (2007). Volatility and variance swaps, Journal of Accounting and Finance, (35), 62-77
  • Kheni, S., & Kumar, S. (2021). Cases, deaths, stringency indexes and Indian financial market-empirical evidence during Covid-19 pandemic. Annals of Financial Economics, 16(02), 2150009.
  • Kuan, C. M. (2002). Lecture on the Markov Switching Model. Institute of Economics Academia Sinica, Taipei.
  • Kusumahadi, T. A., & Permana, F. C. (2021). Impact of COVID-19 on global stock market volatility. Journal of Economic Integration, 36(1), 20-45.
  • Leirvik, T., Fiskerstrand, S. R., & Fjellvikas, A. B. (2017). Market liquidity and stock returns in Norvergian Stock Market. Finance Research Letters, 21, 272-276.
  • Li, Q., Yang, J., Hsiao, C., & Chang, Y. (2005). The Relationship between stock returns and volatility in international stock markets, Journal of Empirical Finance, 12(5), 650-665.
  • Li, W., Chien, F., Kamran, H. W., Aldeehani, T. M., Sadiq, M., Nguyen, V. C., & Taghizadeh-Hesary, F. (2021). The nexus between COVID-19 fear and stock market volatility. Economic Research-Ekonomska Istraživanja, 1-22.
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Details

Primary Language English
Subjects Finance
Journal Section Makaleler
Authors

Emre Bulut 0000-0002-2884-1405

Ahmed İhsan Şimşek 0000-0002-2900-3032

Early Pub Date June 23, 2023
Publication Date June 26, 2023
Submission Date December 21, 2022
Published in Issue Year 2023 Volume: 7 Issue: 1

Cite

APA Bulut, E., & Şimşek, A. İ. (2023). The Relationship Between the Stock Market Volatility, Liquidity, Exchange Rate Return, and Stock Return During the COVID-19 Period: The case of the BIST 100 Index. Bingöl Üniversitesi İktisadi Ve İdari Bilimler Fakültesi Dergisi, 7(1), 121-135. https://doi.org/10.33399/biibfad.1222386
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