How have the Turkish post-2001 stabilization reforms impacted on the conditional correlation between the Turkish and the main foreign stock markets?

摘要

This article investigates the impact of the Turkish post-2001 stabilization reforms on the conditional correlation between the Turkish stock index (ISE 100) and the four major stock indices (S&P 500, FTSE 100, DAX 30, NIKKEI 225). We evaluate these correlations for the period ranging from January 1997 to April 2011 with Dynamic Conditional Correlation (DCC) models. The results obtained with the Asymmetric Generalized DCC (AGDCC) model lead to two substantial conclusions. First, the conditional correlation between the ISE 100 and the four other stock indices has strengthened permanently since late 2003, when the reforms started to produce the expected results in the Turkish economic and financial situations. Second, during most of the financial crises that occurred over the retained period, the correlation between the ISE 100 and the other indices increased for a short period. These increases could be explained by the 'flight to quality' and 'flight to liquidity'. By contrast, during the Turkish crisis (2000-2001) the correlation between the ISE 100 and the other stock indices decreased due to the outflow of capital.