Volatility of ISE and Business Cycle

Abstract

In this paper, we use a disaggregated approach suggested in (Campbell et al. 2001) to study the volatility of a typical stock in the istanbul Stock Exchange (İSE) at the market, industry, and fırm levels över the period 1992-1999. The aim of study is to examine the link between these three disaggregated volatility measures and selected macroeconomic variables. The chosen macroeconomic variables are GDP growth, industrial production, inflation rate and exchange rate. The results indicate that market level volatility accounts for the greatest share of the total fırm volatility on average. The results further suggest that market and firm level volatility have positive correlation with leads and lags of exchange rate while industry level volatility has positive correlation with inflation rate. The results also suggest that ali the components of volatility do not exhibit counter-cyclical behavior with respect to GDP growth and industrial production.