How Do Monetary Policy Uncertainties Affect Stock Returns? The Case of Turkey

With the increasing financial integration among countries, monetary policy decisions in advanced economies such as the US and Japan can be decisive for global financial markets. Monetary policy uncertainties in these countries can quickly spread to financial markets, especially in emerging economies. Therefore, this study investigates the interaction between various newspaper-based monetary policy uncertainty indices for the US and Japan prepared by Baker et al. (2016), Husted et al. (2020), Arbatlı et al. (2017) and Türkiye stock returns. The study, which uses the Quantile on Quantile Approach with monthly data for the period 2003-2024, tries to reveal the response of the stock market in different quantiles to different quantiles of monetary policy uncertainty indices, which have been frequently used in the literature recently. The findings show that the effect of different monetary policy uncertainty indices on Türkiye stock returns exhibits quantile-specific characteristics. Therefore, the impact of US and Japan-based monetary policy uncertainty on Türkiye stock returns is asymmetric and heterogeneous. These results are expected to provide some valuable implications for investors, portfolio managers and policy makers.