**4.2 Results of the multivariate models**

**Tables 3** reports the results of short and long-run estimates of linear multivariate models for BIST All Shares, BIST 100 and BIST 30 stock prices. Panel A captures the symmetric effects of exchange rates on stock prices as well as other macroeconomics explanatory variables. The results show that all markets namely, BIST All, BIST100 and BIST30, are negatively affected by exchange rate changes. These markets on the other hand have a positive and statistically significant relationship with industrial production index implying that economic activity in Turkey has a significantly positive impact on the stock markets in the short run.

in the long run the exchange rate changes affect stock prices positively. Thus the short run relationship between stock prices and exchange rate is not sustained in the long run. When cointegration established among variables then the long run relationship will be relevant. And thus we carry diagnostic statistics reported under Panel C. The F statistic is slightly above the upper bound critical value of 3.35 in all stock prices. The F statistic is statistically significant for all markets which establishes cointegration among variables. We also carry ECM test which is another indication of cointegration and the lagged error term (*ECMt*�1Þ results show significant and negative coefficient. The results of ECM test results supports cointegration among variables. Panel C also reports Langrange Maltiplier (LM) test in order to check for autocorrelation among residuals. The LM test results are insignificant implying that there is no autocorrelation in the residuals. The Ramsey's Regression Specification Error Test (RESET) is also applied to check whether or not the model is misspecified. The results of RESET test statistics are insignificant for all models implies that the models are correctly specified except BIST100. Lastly, we applied the

*The Impact of Exchange Rates on Stock Markets in Turkey: Evidence from Linear…*

**Variables BIST All BIST 100 BIST 30**

*ΔlnSPt*�**<sup>1</sup>** �0.22(3.83)\*\*\* �0.19(3.39)\*\*\* �0.20(3.45)\*\*\* *ΔPOS* �1.07(4.11)\*\*\* �1.21(4.61)\*\*\* �1.23(4.57)\*\*\*

*ΔNEG* �0.06(0.45) �0.19(1.41) �0.16(1.24) *ΔlnIR* �0.45(2.29)\*\* �0.33(1.73)\* �0.35(1.74)\* *ΔlnIPI* 1.38(7.98)\*\*\* 1.37(7.83)\*\*\* 1.32(7.39)\*\*\* *ΔlnVIX* �0.16(4.27)\*\*\* �0.17(4.37)\*\*\* �0.17(4.25)\*\*\* Constant 0.86(1.64)\* 1.21(2.38)\*\* 1.35(2.57)\*\*

*POS* �0.017(0.06) �0.26(1.06) �0.22(0.85) *NEG* �0.029(0.46) �0.84(1.46) �0.77(1.27) *lnIR* �2.00(2.43)\*\* �1.48(1.89)\* �1.60(1.94)\*\* *lnIPI* 1.65(3.07)\*\*\* 1.31(2.33)\*\* 1.19(2.00)\*\* *lnVIX* �0.19(1.62)\* �0.31(2.58)\*\* �0.30(2.42)\*\*

Adjusted *R***<sup>2</sup>** 0.59 0.58 0.57 *F* 4.18\*\* 4.17\*\* 4.08\*\* *ECMt*�**<sup>1</sup>** �0.22(4.16)\*\*\* �0.22(4.11)\*\*\* �0.21(4.05)\*\*\* *LM* 2.51(0.28) 4.56(0.11) 2.97(0.22) *RESET* 1.4(0.22) 1.48(0.21) 0.77(0.50) CS (*CS***<sup>2</sup>**) (5%) Stable Stable Stable Wald (short-run) 13.35\*\*\* 10.06\*\*\* 10.44\*\*\* Wald (long-run) 0.49 2.50 2.06

*Notes: Numbers inside the parentheses are t-ratios. Superscript \*\*\* represents the significance at 1% level, \*\* at the 5%*

*level and \* at the 10% level. The Δ denotes the first difference of the variables.*

*The results of the non-linear multivariate models.*

**Panel A: Short Run Estimates**

**Panel B: Long Run Estimates**

**Panel C: Diagnostic Statistics**

**Table 4.**

**165**

*ΔPOSt*�**<sup>1</sup>** �0.58(2.04)\*\*

*DOI: http://dx.doi.org/10.5772/intechopen.96068*

However, all markets have affected negatively by an increase in interest rates which implies that high interest rates lead to decrease in the investment level in the country and hence decrease economic activity. Likewise, volatility index (VIX) have a negative relationship with all stock market indices which implies that an increase in uncertainty lead to decrease the profitability of firm and thus lead to decrease stock prices in the short run.

When we look at the long run coefficient presented in Panel B, the industrial production index carries significant and positive relationship with all markets while interest rates and volatility index carries negative and significant relationship with stock prices in Turkey. Focusing on the exchange rate on stock prices, we found that


*Notes: Numbers inside the parentheses are t-ratios. Superscript \*\*\* represents the significance at 1% level, \*\* at the 5% level and \* at the 10% level. The Δ denotes the first difference of the variables.*

#### **Table 3.**

*Results of the linear multivariate models.*
