Asymmetric Responses of Stock Prices to Money Supply and Oil Prices Shocks: New Evidence from a Nonlinear ARDL Approach

This study investigates how stock market prices react to oil prices and money supply shocks in Turkey using a nonlinearARDL approach. We establishthe time series properties of the data using both conventional linear unit root tests and the procedure advanced by Zivot andAndrews (1992) to considerthe possible existence of endogenous break in the series. Empirical evidence revealed asymmetric cointegration through Wald statistics of Pesaran andBanerjee. Findings suggest asymmetric responses of Turkish stock market prices to oil prices and money supply shocks, confirming the importance ofnon-linearity in macro-finance variables. Namely, in the long-run, we find a significant negative relation between oil prices and stock market prices.Meanwhile, stock market prices react positively to negative (positive) shocks in money supply. The obtained evidence of the asymmetric behaviorsof stock prices should be taken into account by stock market participants when dealing with their portfolio diversification strategies.