Assessing the financial resilience of sectoral Indices: A study on financial crises in Turkey

Abstract

In the last quarter-century, Turkey has faced three significant financial crises, one of which originated entirely from its own reasons. The first one occurred during 2000–2001, resulting from its internal dynamics. The second was the 2008–2009 Crisis, a global crisis with effects felt worldwide. The last one, again specifically due to its internal dynamics, started in 2018 and was further compounded by the negative impacts of the pandemic. The effects of this crisis still persist in Turkey today. This study comparatively examines the financial resilience of sectoral indices in BIST (Borsa Istanbul—formerly known as Istanbul Stock Exchange) against the mentioned financial crises. Financial resistance and financial recovery are considered as indicators of financial resilience. For the measurement of financial resistance, the performances of sectoral indices have been examined during the pre-crisis and post-crisis periods. In this context, the BIST 100 has been used as a benchmark for a financial resistance index. Through this resistance index, the sensitivity of sectoral indices to financial crises compared to the BIST 100 has been measured. Additionally, a financial recovery index is employed, using the performance of sectoral indices within the 3 years following each crisis. This allows for a comparative analysis in terms of financial recovery. In the study, the 2000–2001 Crisis and the 2008–2009 Crisis were empirically examined, while the 2018 Crisis was theoretically examined due to its ongoing impact on Turkey. For the 2000–2001 Crisis, the start date of the post-crisis period is chosen as 27.11.2000 (the date when some bank owners were featured in the news with their hands handcuffed due to bank embezzlement charges) and for the 2008–2009 Crisis, it is selected as 15.09.2008 (the date of Lehman Brothers’ collapse). According to the research results, the sectors most affected by the 2000–2001 Crisis were, in order, the service sector, technology sector, real estate investment trusts sector, and wholesale & retail trade sector. Banking sector and industrial sector, on the other hand, demonstrated a higher level of resistance compared to the benchmark index. The underlying reason for this is believed to be the structural reform decisions taken for the banking sector in a relatively short period following the crisis and the swift implementation of legal regulations, especially aimed at enhancing exports. Indeed, these two sectors have been the most successful in overcoming the effects of the crisis according to the recovery index. In the 2008–2009 Crisis, the two sectors that were unsuccessful according to the resistance index were the real estate investment trusts sector and the industrial sector. The limited impact of the crisis on developing economies was also applicable to Turkey. In this regard, despite many sectors overcoming this crisis with minimal difficulty, adverse events in international markets, especially negatively affecting exports, have harmed the industrial sector. Additionally, it is believed that the crisis, originating from mortgage-related issues, has negatively impacted the real estate sector as well.