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Abstract

The nature of the relationship between stock prices and exchange rates have been one of the highly debated topic in economics, since the changes in exchange rates can have a different effect on different firms depending on whether the firm is export oriented or heavily depend on imports of inputs. Thus, in this paper, we examine the nature of the relations between stock prices and main determinants of stock prices in Turkey over the period of 2006 and 2017 by using both linear (ARDL) and nonlinear ARDL (NARDL) models. Estimating both linear ARDL and NARDL models including the industrial production index and money supply as independent variables along with exchange rate, we found that there are asymmetric effects between stock prices and exchange rate and industrial production index both in short-and long-run. But, we fail to find any asymmetric effects between money supply and stock prices. The results of the study indicate that the relationship between stock prices and exchange rate are asymmetric implying that depreciation and appreciation of Turkish Lira will have a different effect on stock prices.