EFFECTS OF EXCHANGE RATE VOLATILITY AND FIRM-SPECIFIC FEATURES ON THE RATES OF RETURNS OF THE MANUFACTURING FIRMS LISTED IN BORSA İSTANBUL: A CAPM APPROACH

2021-8-04
Aslan, Mustafa
This study examines the effects of the exchange rate volatility and the firm-specific features representing the liquidity, profitability, and leverage performance of firms on excess stock returns for the manufacturing firms listed in Borsa İstanbul (BIST) using dynamic panel data model. The exchange rate volatility is modeled by single regime generalized autoregressive conditional heteroscedasticity (GARCH) models and Markov-switching GARCH (MSGARCH) models. The MSGARCH models show evidence that the evolution of the volatility process is heterogeneous across the different regimes. The principal component analysis method is employed to 8 financial ratios for the purpose of data reduction to identify the principal components that best represent firm-specific features. 4 components are identified and account for 83% of the total variance in the original dataset of 8 financial ratios. Empirical results from the dynamic panel data generalized method of moments (GMM) models imply that more volatile exchange rates are associated with much lower stock returns. The results also suggest that the excess stock returns of manufacturing firms increase with their liquidity, profitability, and leverage.

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Citation Formats
M. Aslan, “EFFECTS OF EXCHANGE RATE VOLATILITY AND FIRM-SPECIFIC FEATURES ON THE RATES OF RETURNS OF THE MANUFACTURING FIRMS LISTED IN BORSA İSTANBUL: A CAPM APPROACH,” M.S. - Master of Science, Middle East Technical University, 2021.