Abstract

Increasing amounts of capital flows to developing countries and emerging markets tend to stimulate economic activity in these countries on one hand, and lead to serious macroeconomic fluctuations on the other hand. Foreign investors’ activities in an emerging market, specifically in a stock market can have serious implications over the stock market as well as the overall economy of that country. The primary purpose of this research is to analyze the causes of capital inflows by a VAR model, specifically monthly transactions by foreigners in Istanbul Stock Exchange (ISE), for the period January 1997 through December 2011. The model investigates the effects of Foreign Direct Investment, ISE Index, NYSE Index, US Treasury Bill and US Industrial Production over sales, purchases and net transactions of foreigner investors in ISE.

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