Economic Policy Uncertainty, Financial Factors, and BIST 100 Volatility in Türkiye: Evidence from A TVP-VAR Model

Read full text
Authors: Ece Kepenek, Erkan Ağaslan
Cited by: 1
References: 93

Abstract

This study examines how macroeconomic and financial factors affect Turkish stock market volatility over time. The dependent variable is a GARCH(1,1) based conditional volatility series that captures the volatility clustering common in financial markets. The independent variables are the Economic Policy Uncertainty (EPU) index of Baker, Bloom, and Davis (2016), the sovereign yield spread between Türkiye and the United States on 10-year government bonds, and the USD/TRY exchange rate return. The analysis uses monthly data from February 2010 to December 2024. A TVP-VAR model is estimated, and the resulting impulse response functions, computed separately for each period, are presented as three-dimensional surface plots. The findings indicate that EPU shocks have a strongly positive effect on BIST 100 volatility during the 2014-2015 global monetary policy normalization process, but turn negative during the 2018 currency crisis. Interest rate spread shocks discipline volatility through credible monetary policy in the 2010-2013 period, yet this stabilizing effect nearly vanishes during the unconventional monetary policy episode of 2021-2022. Exchange rate return shocks reach their strongest negative effect in the 2016-2018 period before exhibiting a partial recovery following the return to orthodox monetary policy.

Fields of Study & Subjects

Market Dynamics and Volatility Financial Risk and Volatility Modeling Monetary Policy and Economic Impact

Publication details

Journal / source
Ekonomi Politika ve Finans Arastirmalari Dergisi
Publisher
Ekonomi Politika ve Finanas Arastirmalari Dergisi
Volume
11
Issue
2
Pages
646–670
Publication date
30 June 2026
Language
TR