Political news and stock market reactions: evidence from Turkey over the period 2008–2017

News headlines	Categorizing	Decision
Kurdish leader Abdullah Ocalan declares ceasefire with Turkey.	Good News	Included
Vladimir Putin: Turkey’s downing of Russian jet “a stab in the back.”	Bad News	Included
Turkey and United States “agree in principle” to provide air support for Syrian rebels.	Nonevent	Excluded
Dilek Öcalan, niece of jailed Kurdish leader, enters Turkish parliament.	Nonevent	Excluded
Good news	Political news with positive nature, which are expected to increase stock market investors’ appetite such as:
	– signing new deals and accords
	– declaring ceasefire
	– ending conflicts
	– peaceful and successful elections
	– quick and easy government formation
	– fruitful diplomatic visits
	– freeing prisoners, etc.
Bad news	Political news with negative nature, which are expected to decrease stock market investors’ appetite such as:
	– military incursion into a war zone
	– protest movements
	– coup attempts
	– bombing attacks
	– detaining journalists
	– cut off diplomatic relations
	– unfair elections, etc.

BIST-100 Index Closing Prices and Returns (January 2008–December 2017).

BIST-100 Index Closing Prices and Returns (January 2008–May 2013).

BIST-100 Index Closing Prices and Returns (June 2013–December 2017).

Table 2

Descriptive statistics of the daily returns of the BIST-100 index

Statistical indicator	Full sample period	First subperiod	Second subperiod
Mean	0.000277	0.000327	0.000216
Median	0.000737	0.000914	0.000526
Maximum	0.121272	0.121272	0.063602
Minimum	−0.132585	−0.132585	−0.110638
SD	0.016851	0.018572	0.014508
Skewness	−0.288541	−0.177630	−0.556939
Kurtosis	9.147130	8.798611	8.232316
Jarque–Bera	3877.145	1878.755	1317.614
Probability	0.000000	0.000000	0.000000
Sum	0.675713	0.437161	0.238551
Sum SD	0.692872	0.460487	0.232378
Observations	2441	1336	1105

Quantile–Quantile (Q–Q) normal distribution plots.

Table 3

ADF unit root test for the BIST-100 return series

		Critical values

Unit root test	ADF statistic	Prob.*	1%	5%	10%
Full period	−48.34709	0.0001	−3.433	−2.862	−2.567
First subperiod	−34.458	0.0000	−3.435	−2.863	−2.568
Second subperiod	−36.152	0.0000	−3.436	−2.864	−2.568

[i] ADF, augmented Dickey–Fuller.

Note: (1). MacKinnon [1996] one-sided p values. (2). Test equations include only constant term.

Table 4

ARCH–LM test for residuals of BIST-100 index returns

	Full sample	First subperiod	Second subperiod
ARCH–LM test statistic	160.20	96.011	38.601
Prob. Chi-Square (5)	0.0000	0.0000	0.0000

[i] Note: (1). The equations include up to five lags. (2). Null hypothesis: There is no ARCH effect in the residuals. (3). Null hypothesis rejected at 1%.

Table 5

Estimation of GARCH(1,1) and GARCH-M(1,1) for BIST-100 with political news

Model	GARCH(1,1)			GARCH-M(1,1)
	Full sample	First subperiod	Second subperiod	Full sample	First subperiod	Second subperiod
Mean equation
α₀	0.001111***	0.001128**	0.000948**	0.001978*	0.002472*	0.002450
α₁	−0.002174	0.031160	−0.054024*	−0.002785	0.029342	−0.055269*
α₂	−0.000760	0.002617**	−0.001916*	−0.000780	0.002426*	−0.001862*
α₃	−0.061635	−0.091964	−0.118868
Variance equation
ω	7.41E-06***	1.00E-05***	6.43E-07	7.36E-06***	9.94E-06***	6.57E-07
α₁	0.076551***	0.102251***	0.015308***	0.076102***	0.102292***	0.015462***
β₁	0.898723***	0.874146***	0.972044***	0.899766***	0.874655***	0.972123***
α₂	−4.46E-06	−2.31E05***	7.00E-06***	−5.14E06	−2.37E-05***	6.71E-06***
α₁ + β₁	0.975274	0.976397	0.987352	0.975868	0.976947	0.987585
AIC	−5.526698	−5.393872	−5.765890	−5.526090	−5.393065	−5.764631
SC	−5.510059	−5.366623	−5.734145	−5.507075	−5.361924	−5.728350
Standardized residuals (12)
AC	0.050	0.062	0.030	0.048	0.060	0.029
Standardized residuals squared (12)
AC	0.012	0.012	0.052	0.012	0.012	0.051
ARCH–LM Test (12)
Obs*R²	9.984522	9.742550	13.28401	9.960117	9.442707	13.38535

[i] AIC, Akaike Information Criterion; SC, Schwarz Criterion.

Note: The results in the table are derived based on the following symmetric GARCH(1,1) and GARCH-M(1,1) models:

Table 6

Estimation of EGARCH(1,1) and TGARCH(1,1) for BIST-100 with good news

Model	EGARCH(1,1)			TGARCH(1,1)
	Full sample	First subperiod	Second subperiod	Full sample	First subperiod	Second subperiod
Mean equation
α₀	0.000724***	0.000906**	0.000333	0.000729**	0.000934**	0.000522
α₁	0.005798	0.057195*	−0.040277	0.008394	0.043277	−0.050734
α₂	−0.000510	−0.000947	0.000183	−0.000632	−0.000833	0.000335
Variance equation
ω	−0.366020***	−0.433170***	−0.138736***	1.02E-05***	1.02E-05***	3.25E-06***
α₁	0.147939***	0.192757***	0.003007	0.035126***	0.053410***	−0.008972*
γ	−0.07549***	−0.084255***	−0.058738***	0.092297***	0.105968***	0.040310***
β₁	0.969516***	0.965389***	0.984060***	0.881138***	0.863366***	0.970516***
α₂	−0.047879	0.012282	−0.071438**	−2.17E-05**	−2.13E-05	−1.08E-05
α₁ + β₁	1.117455	1.158146	0.987067	0.916264	0.916776	0.961544
AIC	−5.540874	−5.395254	−5.785344	−5.540191	−5.400103	−5.769109
SC	−5.521858	−5.364113	−5.749063	−5.521175	−5.368962	−5.732828
Standardized residuals (12)
AC	0.052	0.060	0.043	0.055	0.028	0.048
Standardized residuals squared		(12)
AC	0.032	0.032	0.061	0.028	0.028	0.073
ARCH–LM test (12)
Obs*R²	15.58045	18.11254	16.88094	12.18862	13.19092	13.47925

[i] AIC, Akaike Information Criterion; SC, Schwarz Criterion.

Note: The results in the table are derived based on the following asymmetric EGARCH(1,1) and TGARCH(1,1) models:

Table 7

Estimation of EGARCH(1,1) and TGARCH(1,1) for BIST-100 with bad news

	EGARCH(1,1)			TGARCH(1,1)
Model	Full sample	First subperiod	Second subperiod	Full sample	First subperiod	Second subperiod
Mean equation
a₀	0.000821***	0.000743*	0.000744*	0.000774**	0.000716*	0.000934**
a	0.006147	0.059654**	−0.046279	0.008156	0.042385	−0.054156*
₁a₂	−0.001054	0.003145**	−0.002748***	−0.001045	0.003549**	−0.003142***
Variance equation
w	−0.335437***	−0.380741***	−0.142205***	8.82E-06***	1.06E-05***	7.00E-07
a₁	0.139369***	0.184271***	0.013892	0.033089***	0.049834***	−0.014458**
γ₁	−0.071022***	−0.079453***	−0.050282***	0.092487***	0.100430***	0.039582***
b₁	0.972227***	0.969907***	0.985540***	0.886495***	0.870900***	0.978532***
a₂	−0.030995	−0.145424***	0.034923**	−1.11E-06	−2.82E-05***	1.18E-05***
a₁ + b₁	1.111596	1.154178	0.999432	0.919584	0.920734	0.964074
AIC	−5.541641	−5.401561	−5.789227	−5.539515	−5.406895	−5.782023
SC	−5.522625	−5.370420	−5.752947	−5.520500	−5.375754	−5.745742
Standardized residuals (12)
AC	0.050	0.059	0.033	0.053	0.064	0.036
Standardized residuals squared		(12)
AC	0.031	0.025	0.058	0.026	0.022	0.063
ARCH–LM Test (12)
Obs*R²	15.72301	16.89227	13.51268	12.02281	12.06731	11.94038

[i] AIC, Akaike Information Criterion; SC, Schwarz Criterion.

Note: The results in the table are derived based on the following asymmetric EGARCH(1,1) and TGARCH(1,1) models:

References

Authors

Metrics

Articles in this issue

DOI: https://doi.org/10.2478/ijme-2019-0013 | Journal eISSN: 2543-5361 (formerly 2299-9701) | Journal ISSN: 2299-9701

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Language: English

Page range: 83 - 98

Submitted on: Jan 10, 2019

Accepted on: Jun 2, 2019

Published on: Jun 30, 2019

Published by: SGH Warsaw School of Economics

In partnership with: Paradigm Publishing Services

Publication frequency: 4 issues per year

Keywords:

uncertainty,

shock,

return,

volatility,

BIST-100,

GARCH

JEL:

C22,

G11,

G12,

G14

Related subjects:

Business and economics,

Business management,

Management accounting, financial controlling, cost calculation, investment

© 2019 Sleiman Karime, Özlem Sayilir, published by SGH Warsaw School of Economics
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Volume 55 (2019): Issue 2 (June 2019)

Political news and stock market reactions: evidence from Turkey over the period 2008–2017

Figures & Tables

Table 1

Figure 1

Figure 2

Figure 3

Table 2

Figure 4

Table 3

Table 4

Table 5

Table 6

Table 7

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