Monetary Policy And Stock Returns: The Case Of Turkey

Abstract

This paper investigates how much of the variance in stock returns can be explained by monetary policy for the case of Turkey. We extend the work of Ewing (2001a) for the case of Turkey by using the newly developed generalized forecast error variance decomposition technique [Koop et al. (1996), Pesaran and Shin (1998)]. Results suggest that the growth rate of money supply contain significant information for predicting variance of future forecast errors of stock returns. The results provide information which is important for building accurate asset pricing models, forecasting future stock market volatility and furthers our understanding of stock market behavior in Turkey.