Fluctuations of BIST Sectoral Index Movements During High Inflation Periods: A Markov Regime Switching Analysis

Periods of high inflation generally cause uncertainty and risks in financial markets. In Turkey, the 2017-2023 period covers a time period characterized by frequent economic and financial fluctuations. High inflation in this period affected many sectors in the country and created significant volatility in financial markets. BIST sector indices were also affected by this economic environment and exhibited different volatile performances. In particular, sectors such as energy, food and beverages are generally more affected by inflation, while sectors such as services and technology have adapted more flexibly to economic fluctuations. In this study, BIST Sector Indices: Food and Beverages, Electricity, Tourism and Technology indices over time (2017-2023), i.e., high and low return periods, a univariate Markov Regime Switching (MRS) model is estimated. According to the findings, the Food and Beverages index is stable in a particular market regime for a long period of time and has a high probability of remaining in that regime once it is switched. For the Electricity index, the index tends to remain in a particular market regime for a long time and can adapt quickly to changes in the market. During periods of high inflation, the BIST-Tourism Index exhibited long-term stability and the low volatility period covered a large period of time. This suggests that the tourism sector is resilient to economic uncertainties and is more suitable for long-term planning. For the BIST-Technology Index, it is understood that there is a long period of stability in a particular market regime and the period of low volatility lasts almost as long as the period of high volatility. This suggests that the technology sector is resilient to economic uncertainties and maintains its long-term stability. The contribution of this study to the literature is that it reveals sector-specific long-term stability and volatility characteristics to analyze the fluctuations of BIST sectoral indices during periods of high inflation. It provides investors with important information about the different performance characteristics across sectors, allowing them to formulate more effective strategies.