The Relation between Confidence Climate and Stock Returns: The Case of Turkey

Abstract

This study examines the relations between consumer confidence, reel sector confidence and five different stock indices (aggregate, financial, industrial, service and technological) with VAR models. Michigan University Sentiment Index, VIX volatility index and GFK Germany Consumer Climate Index are also associated into the models to investigate international effects. The results suggest that, there is no causality relation from consumer confidence towards stock returns, however, stock returns found to positively affect consumer confidence. On the other hand, two-way causality exists between reel sector confidence index and stock returns, each one effects the other with certain lag of time. Michigan University Consumer Sentiment Index and VIX volatility index have explanatory power on almost all stock indices of Turkey, but GFK Germany Consumer Climate Index has no effect on any stock returns in all models. This may indicate that, globalization takes part in domestic markets, and rather than Germany, USA confidence climate is more felt in Turkey. (C) 2016 The Authors. Published by Elsevier B.V.