ISE review

Istanbul Stock Exchange

Volume: 8 No: 34

Subjects

· Cointegration and Causality Between Macraeconomic Variables and Share Prices
Ömer Yılmaz & Bener Güngör & Vedat Kaya

· Comparing the Convergence Behaviour of Binomial and Trinomial Models
Mehmet Horasanlı

· Foreign Direct Investment and Real Exchange Rate: A Causality Analysis
Hasan Vergil & Hamza Çeştepe

· Global Capital Markets

· ISE Market Indicators

· ISE Publication List

Cointegration And Causality Between Macroeconomic Variables And Share Prices

Ömer YILMAZ
Bener GÜNGÖR
Vedat KAYA

Abstract
The aim of this study is to investigate whether there is a relationship between some macroeconomic variables and share prices. In the analysis, covering the period of 1990: 01-2003: 12, variables of Istanbul Stock Exchange index, consumer price index, money supply, interest rate, exchange rate, trade balance, and industrial production index were used. Least squares estimation method, Johansen-Jeselius cointegration test, Granger causality test and variance decomposition results produced by VEC model were used in the study. These analysis shows that there is a long run relationship between some macroeconomic variables and share prices.

Comparing The Convergence Behaviour Of Binomial And Trinomial Models

Mehmet HORASANLI

Abstract
An American option differs from a European one by the early exercise possibility. An American option can be exercised at any time up to the maturity date. In general, there is unfortunately no analytical solution to the American option problem. Binomial and trinomial approximations are useful to solve this problem but using a lattice model introduces approximation error. Both models have the property of convergence to Black&Scholes prices thus; can be used alternatively to solve the Black&Scholes partial differential equation. This paper presents the suitable conditions under which the two models converge to Black&Scholes and compares the convergence behaviour in order to question their efficiency.

Foreign Direct Investment And Real Exchange Rate: A Casuality Analysis

Hasan VERGİL
Hamza ÇEŞTEPE

Abstract
This paper empirically investigates the direction of a causal relationship between exchange rates and foreign direct investment (FDI) flows using quarterly data from Turkey for the period 1987-2000, by means of Granger non-causality testing procedure developed by Toda and Yamamoto (1995). The results indicate that Granger causality is unidirectional and is running from FDI to real effective exchange rates. The results of this article generally agree with the predictions by the portfolio model according to which financial and capital liberalization in Turkey leads to an increase in capital inflows, which in turn, a real exchange rate appreciation.