The impact of economic policy uncertainty on stock returns of Turkish tourism companies

Abstract

Economic policy uncertainty (EPU) has various implications for financial markets. This study examines the effects of EPU on stock prices of listed tourism companies in Turkey for the time period of 2002–2013. We show that EPU in Europe and Turkey has significant negative effects on tourism index returns. The finding reflects that stock returns of the Turkish tourism companies apparently depend on domestic and international economic uncertainty. Among the included macroeconomic variables, consumer confidence index is the only factor which has an impact on stock returns.

Keywords:

• economic policy uncertainty
• tourism
• stock return
• Turkey

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The index includes eight firms namely AVTUR (AVRASYA PETROL VE TUR.), ETILR (ETİLER GIDA), MAALT (MARMARİS ALTINYUNUS), MARTI (MARTI OTEL), METUR (METEMTUR OTELCİLİK), NTTUR (NET TURİZM), TEKTU (TEK-ART İNŞAAT) and UTPYA (UTOPYA TURİZM).

2 Details about the data and methodology can be found at http://www.policyuncertainty.com/index.html and Baker et al. (2013).

3 Percentage change for EPU on month , , is calculated as . Other percentage change variables are calculated in the identical way.

4 We thank the anonymous referee for the comment on misspecification and normality tests. Examining through QQ plots and residual analyses, we observe that deviation from normality is a consequence of six observations with exceptionally high values (as high as 67%) for our explained variable, monthly returns on tourism index. We verify these six observations by implementing a cluster analysis (HAC) to divide the data (on both y and residuals on three models) into two. While these six observations form a single cluster, the remaining ones are all placed in the other cluster.

5 The hypothesis is tested by computing the Lagrange multiplier statistic. Stated in Breusch and Pagan (1979), it is equal to in the regression of upon , where . It is asymptotically distributed as with degrees of freedom.

6 Limited explanatory powers are mainly due to existence of diverse, numerous determinants of stock returns as well as to the expected large random effect. In this paper, our main goal is to differentiate the role of EPU considering for macroeconomic variables as well. In relevant studies examining tourism sector performance in financial markets, levels of explanatory power are similar (e.g. 2–5% in Chen et al., 2010; 5–10% in Chen, 2007a, 2007b).