VOLATILITY DYNAMICS: INTEREST AND EXCHANGE RATE EFFECTS ON BIST-100 RETURNS PERFORMANCE

This research empirically analyses the dynamic effect of interest rate and exchange rate volatilities on BIST stock returns, elucidating how fluctuations in these rates influence market performance. Specifically, the analysis uses monthly panel data from BIST-100 companies between July 2012 and June 2023, applying ARCH and GARCH estimation methods. In addition, returns of stocks trading at the BIST-100 index are obtained. The findings reveal significant linkages between these variables: stock market returns, interest rate and exchange rate volatilities. It was determined that the majority of stocks trading in the BIST-100 were significantly affected by interest rates and exchange rate volatilities. In particular, the BIST-100 return index was negatively affected by interest rate changes and positively affected by exchange rate volatility. The results obtained reveal the high volatility of BIST as an emerging market stock market and contribute to the literature. It is anticipated that the results of the research will also guide investors and policymakers, and provide a thorough assessment of their impact in the context of an emerging market economy.