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Annals of Data Science
Erschienen in:

11.06.2024

A Two-Stage Analysis of Interaction Between Stock and Exchange Rate Markets: Evidence from Turkey

verfasst von: Muhammad Ali Faisal, Murat Donduran

Erschienen in: Annals of Data Science | Ausgabe 1/2025

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Abstract

In this study, we use a novel approach to explore possible connections between foreign exchange and stock returns using Turkish financial data from 2005 to 2022. Our method involves a two-stage technique. The first stage begins by decomposing individual time series signals into separate intrinsic mode functions (IMFs) with a complete ensemble empirical mode decomposition with added noise algorithm. Extracted IMFs are then used to construct high and low-frequency components through a fine-to-coarse algorithm. In the second phase, we utilized a cross-quantilogram technique to analyze the dependence in quantiles of the original return series along with frequency components obtained in the previous stage. Results revealed several important insights. Firstly, a relatively higher effect ran from stock returns to exchange rate returns for the pertinent period. Secondly, tail dependence is apparent, as returns are discernibly linked. Thirdly, the tail dependence in the returns is more profound in the high-frequency composition than in the low-frequency component. Lastly, the structure of dependence has stayed mostly constant throughout the sample period analyzed.
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Fußnoten
1
For details, readers are referred to [17, 18].
 
2
For details, readers are referred to [21‐24].
 
3
such as empirical mode decomposition (EMD) and ensemble empirical mode decomposition (EEMD).
 
4
It refers to the situation where an IMF contains the signals of another IMF.
 
5
To construct separate components, we preferred Wilcoxon rank sum test over t-test used by [51] to overcome misspecifying normal distribution assumption of IMF sums.
 
6
The process requires both time series to be strictly stationary.
 
7
CQ is defined for a bivariate process. For the analysis of a single series, the process is simply quantilogram of [55].
 
8
In practice, the Box-Ljung version is preferred due to its superior performance for a small sample and a large p [56].
 
9
For creating a matching sample for the two series, we removed missing dates so that both returns are synced.
 
10
\(R_t = 100*log(P_t/P_{t-1})\), where \(P_t\) is the price at time t.
 
11
To conserve space, plots for reconstruction errors are not reported, however, they are available upon request from the corresponding author.
 
12
In their original paper, [47] defined two conditions that an IMF must satisfy, our obtained functions fulfill both the conditions. For details, readers are referred to section 4 of their paper.
 
13
Results can be shared upon request from the corresponding author.
 
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Metadaten
Titel
A Two-Stage Analysis of Interaction Between Stock and Exchange Rate Markets: Evidence from Turkey
verfasst von
Muhammad Ali Faisal
Murat Donduran
Publikationsdatum
11.06.2024
Verlag
Springer Berlin Heidelberg
Erschienen in
Annals of Data Science / Ausgabe 1/2025
Print ISSN: 2198-5804
Elektronische ISSN: 2198-5812
DOI
https://doi.org/10.1007/s40745-024-00547-y

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