PUBLIC INFORMATION, EMERGING MARKET RETURNS, AND THE FISHER EFFECT: EVIDENCE FROM THE ISTANBUL STOCK AND GOLD EXCHANGES

Tansu AKSOY (Southern Illinois University)
Ali M. KUTAN (Southern Illinois University)

Using six years of daily data, we examine the impact of monthly consumer price index (CPI) news releases on stock and gold market returns and volatility in an emerging, high-inflation economy of Turkey. We find that only the Istanbul Stock Exchange (ISE) responds significantly to the release of the CPI news. Among different sector indices investigated, financial sector returns react most strongly to the release of the CPI. We find no evidence supporting the Fisher effect, however. ISE, at best, serves as a partial hedge against inflation whereas the gold market does not appear to serve such a role at all. This finding suggests that the traditional role of gold as a store of value in high-inflation countries like Turkey has been disappearing with the development of alternative assets, such as shares. We also document the response of both markets to several macroeconomic news releases critical for Turkish economy, such as balance of trade and tourism. It is found that the response of the stock market to such public announcements is more pronounced than that of the gold market. These findings are helpful for market participants to manage risk more efficiently, to devise better trading strategies, and to build more effective diversified portfolios.