The analysis of relationship between benchmark index and bist indices by simultaneous quantile regression

Abstract

According to investors, interest rate and stock markets investments are substitutions and it is expected that they have negative correlation in economics theory. Benchmark Index is a type of sovereign bond interest rate which has 5-year coupon rate in Turkey. It is accepted as a proxy of market interest rate, since it is trading on secondary markets, very often. The aim of the study is to investigate the relationship between Benchmark Index and Borsa Istanbul indices which are XU100, XU30, XUTUM, XUMAL and XBANK for different parts of the indices' conditional distribution by using simultaneous quantile regression technique. Findings indicate that the negative effect of benchmark index on Borsa Istanbul indices have different influence for high and low quantiles. The power of effect is stronger on XUMAL and XBANK indices than the others. Moreover, each index reacts differently to an economic shock on interest rate. Therefore, it is suggested that investors should revise their investment strategies in periods which the indices are low or high while they are managing their funds according to benchmark index predictions.