Global Factors and Stock Returns: Empirical Evidence From the Istanbul Stock Exchange

The objective of this paper is to explore the effects of some global factors on stock returns for the Istanbul Stock Exchange (ISE). To this end, a set of global variables such as current account balance, international capital flows, exchange rates and U.S. stock price index are employed in our empirical analysis. We utilized the modeling strategy of Hendry (1980) and an error correction model (ECM) in order to analyze the dynamic short-run relations between global variables and stock prices. The findings of this paper suggest that global factors are important in explaining the variations in stock returns for the specific case of Turkey. Thus, the empirical evidence presented in this paper support the view that the dynamic linkages between emerging markets and global factors may be significant due to increased integration of international financial markets in the past decade.