**Acknowledgements**

cumulative sum of recursive residuals (CUSUM denoted CS) and the cumulative sum

We also test the asymmetric effects of exchange rate changes on stock prices using the nonlinear multivariate models (see **Table 4**). Thus we decompose the exchange rates changes into its positive (*POS*Þ and negative (*NEG*) partial sums to test whether stock prices have asymmetric relationship with exchange rates

changes. The results show that the currency appreciation (Δ*POS*Þ has a negative and significant coefficient but the currency depreciation (Δ*NEG*) do not have significant coefficient. This implies that there is asymmetric relationship between the exchange rate and stock prices in the short-run. This asymmetric relationship is not continue in the long-run as in Panel B, *POS* and *NEG* variables have insignificant coefficients. When we look at the effects of other variables we see that the industrial production index has positive and significant effect both in the short and long run.

The aim of this chapter is multiresolution analysis with the application of advanced economic techniques using four different ARDL models to shed some light on the analysis of the symmetric and asymmetric impact of exchange rates on three major stock market indices in Turkey using monthly data from 2003M1 to 2018M12. This chapter also attempts to differentiate the short-run and long-run relationship between exchange rates and market indices. The motivating question is whether the relationship between the two is symmetric or asymmetric in Turkey? To answer the question, we employed four different methods: linear bivariate ARDL model is applied to investigate linear relationship between stock markets and the exchange rates; linear multivariate ARDL model employed to show that changes in some additional variables such as interest rates and industrial production have symmetric or asymmetric effects on stock markets; as exchange rate has different impact on different sectors of the economy, multivariate ARDL models employed to analyze the relationship between them. Moreover, the relationship should not be based on the linear but also on non-linear dimension. Thus finally, non-linear bivariate and multivariate ARDL models applied to analyze the non-linear relationship between stock market indices and the exchange rates in

This study is of great interest for a country that has import-oriented economy, has completed its financial liberalization in the early 1990s, and become an attractive destination for foreign investors. The rationale for assessing the role of symmetric and asymmetric effects of exchanges rate on stock markets in Turkey is based on the perception, as expressed by (Dornbusch and Fischer 1980 and Frankel 1992), that the stock markets can react positively or negatively to fluctuations in exchange rates. Determining the factors that cause movements in stock markets is very important and is of great interest to policy makers and investors. The role of exchange rates on stock markets is much more important for small open economies in particular emerging markets. There is no sufficient research evidence showing the links between foreign exchange rate and Turkish stock market. We believe that

The findings show that exchange rates have asymmetric effects on all three major stock market indices both in the short and long-run. When we look at the long-run, the currency appreciation has positive and significant effect on stock market indices but currency depreciation does not have an effect. This finding is in line with the understanding that Turkish sectors heavily depends on the import of

this study will fill the gap in the literature in this area.

) tests. According to both CS

of recursive residuals of square (CUSUMQ denoted *CS*<sup>2</sup>

*Linear and Non-Linear Financial Econometrics - Theory and Practice*

**5. Conclusion**

Turkey.

**166**

and *CS*<sup>2</sup> test results, the models are stable except BIST All Shares.

https://orcid.org/0000-0003-4565-9581.
