Volatility of the Turkish stock market

The objective of this dissertation is to analyze volatility of one of the fastest growing emerging stock markets namely Istanbul Stock Exchange (ISE). Using the daily return data of 220 firms over the period of 1992--1999 we first construct three different measures of monthly stock market volatility: the time-series volatility of daily market returns within the month; the cross-sectional volatility or "dispersion" of daily returns on industry portfolios within the month; and the dispersion of daily returns on individual firms within the month. The analysis of these volatility series shows that there is strong evidence of a positive deterministic trend in market-level volatility. We find that market-level volatility both accounts for the greatest share of total firm volatility on average, and for the greatest share of the movement over time in total firm volatility.;We next examine the cyclical behavior of disaggregated volatility measures by focusing on the link between the volatility measures and chosen macroeconomic variables. The chosen macroeconomic variables are GDP growth, industrial production, inflation rate and exchange rate. GDP is measured in quarterly frequency. We construct new volatility series in that frequency. We find that all the volatility measures exhibit anti-cyclical behavior. The results of various OLS regression reveal that market and firm-level volatility help to predict GDP growth. The same regression analysis for industrial production and monthly volatility series, on the other hand, give inconclusive evidence about the forecasting power of the volatility series.;The last part of the dissertation focuses on the volatility of individual industries. We construct new volatility measures to study 15 industries separately. We find that Food, Construction Material, Ferrous Metals, Engineering and Insurance industries exhibit significant negative trend while investment trust exhibit positive trend in terms of industry-level volatility. Among all industries, only Food, Textile and Transportation show significant trend in terms of firm-level volatility. We also study the cyclical behavior of industries in Manufacture sector with respect to industrial output growth. We find that industry and firm-level volatility move together countercyclically but they do not help to predict future output growth in that industry.