The Relationship of Exchange Rate and Oil Price Volatilities with Stock Returns: Evidence from Borsa Istanbul Sector Indexes

The aim of this study is to investigate the effects of volatility in exchange rates (USD and EURO) on the BIST 100 and 23 sub-sector indexes in Borsa Istanbul using monthly data from January 2008 to April 2021. For this purpose, long-term coefficients for each model were investigated using the fully-modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) estimators after determining the long-term relationships among the variables with the Johansen cointegration test. The use of these methods for the first time and adoption of a current data set in this way constitute this study's contribution to literature. The study reached results that show an increase in the USD to negatively affect the stock returns for all sectors, while the Euro's coefficient was statistically insignificant in all other models. When examining the effect of oil prices on sector indices, this coefficient is positive for most sectors, and statistically significant for a limited number of sectors. However, oil prices are understood to have a smaller positive effect than the negative effect from changes in the USD exchange rate.