Estimation and Forecasting the Relationship Between Exchange Rate Changes and Islamic Stock Performance: A Case Study of The Turkish Dow Jones Islamic Index

This study aims to estimate and forecast the relationship between exchange rate fluctuations and the performance of the Turkish Dow Jones Islamic Index over the period from January 1, 2020, to May 17, 2024, using weekly data. The study employed the Autoregressive Distributed Lag (ARDL) model, which is considered one of the effective econometric approaches for examining dynamic relationships between economic variables. The findings revealed the existence of a long-term relationship between exchange rate fluctuations and the performance of the Turkish Dow Jones Islamic Index, as reflected in the returns of the Islamic stocks included in the index. Moreover, the results indicated that exchange rate changes exert a positive and direct impact on the index, both in the short and long run, reflecting the interactive nature of financial markets and foreign exchange markets. The data also proved effective in generating accurate in-sample predictions, thereby confirming the suitability of the chosen model and the robustness of its explanatory power. Based on these findings, policymakers can utilize the results to formulate more informed monetary and fiscal policy decisions and to determine the optimal timing for intervention in Islamic markets in line with national economic policies. Likewise, these findings provide investors and portfolio managers with practical tools to hedge against exchange rate risks, enhance the efficiency of portfolio diversification, and improve their ability to predict future stock market movements through close monitoring of foreign exchange markets.