REFLECTION OF THE COINTEGRATION RELATION AMONG THE STOCK MARKETS ON THE PORTFOLIO CHOICES: AN EMPIRICAL APPLICATION FOR FRAGILE FIVE COUNTRIES

Gulfen Tuna and Vedat Ender Tuna

Sakarya University, Department of International Trade, Sakarya, Turkey
Sakarya University, Institute of Social Sciences, Sakarya, Turkey

The aim of this study is to examine the long-term relationship between each pair of the countries separate from those in the Stock Markets of Fragile Five Countries and determine the optimal portfolio options for each of the BIITS countries according to the pieces of evidence obtained. Thus, the reflection of the concertedness among financial markets to the optimal portfolio options has been studied. Accordingly, long term relationships between each pair of BIITS countries have been investigated with monthly price value between June 2006 and July 2015 by means of Maki Cointegration Test. Optimal portfolio options have been established according to the Markowitz Model considering the long-term relationships between the markets. The pieces of evidence obtained show that lower-risk portfolios than the ones in their own national markets can be established in BIITS countries by applying international diversification

Keywords: fragile five economies, portfolio diversification, Turkey, Maki Cointegration Test, portfolio selection

JEL Classification: G01, G11, C22

Economic Horizons, 2016, Vol. 18, No 3, pp. 185-196; Published online 30 December 2016; doi:10.5937/ekonhor1603187T
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