The Impact of Expected Crude Oil Price Volatility on Industrial Index Returns in Turkey: An Analysis Using the Least Squares with Breaks Method

Access to energy resources is of great importance for a country's industrial production and, consequently, its level of economic development. One of the primary energy resources is oil. Oil serves as a critical input for industrial production, both as an energy source and as a raw material for many sectors. This study aims to examine the impact of expected oil price volatility on Turkey’s industrial index returns. In this regard, the CBOE Crude Oil Volatility Index (OVX) and BIST Industrial Index data were used. The study covers a 10-year period from January 15, 2015, to January 15, 2025, utilizing weekly index closing data. First, structural breaks in the research period were analyzed using the Bai-Perron Test. A structural break in the relationship between time series was identified on March 27, 2020, following the first reported COVID-19 case and death in Turkey. The statistical significance of this structural break was confirmed by the Chow Test. To determine the impact between variables, the Least Squares with Breaks method was applied. According to the research findings, OVX had a statistically significant and negative effect on industrial index returns before the structural break. However, this effect disappeared in the post-break period. The possible underlying reason for this shift is thought to be the changing priority of risk perceptions in the industrial sector, especially due to the global economic challenges that emerged during the pandemic period.