Abstract

This paper investigates the relationship between stock prices and exchange rates in the Turkish economy during the period from 1990:01 to 2011:04 by using the threshold error correction model and the threshold granger causality test. According to empirical evidence which was obtained from this paper, there is a bidirectional causality between stock prices and exchange rate of Turkey. This evidence implies that the crisis in the stock market can be partially prevented by controlling the exchange rate and authorities can focus on domestic economic policies to stabilize the stock markets.

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