The Impact of Fundamental Shocks on Stock Prices: Evidence from Turkey

Abstract

In this study, we investigate the relationships between Borsa Istanbul Stock Exchange (BIST)
stock prices and underlying macroeconomic shocks in the Turkish economy. For this, we
employ both bivariate and trivariate Structural Vector Autoregressive (SVAR) models to
examine the effects of fundamental shocks on stock price movements in Turkey during the
period 1998-2013. The analysis reveals that the relationship between stock prices and real
activity variables is substantially stronger than the relationship between stock prices and key
investments, i.e., the interest rates, gold investment and the US dollar. Furthermore, most of
the findings in this paper cannot confirm that fundamental shocks became substantially less
important.