Page 190 - IJOCTA-15-1

H.H. Yildirim, A. Akusta / IJOCTA, Vol.15, No.1, pp.183-201 (2025)
associated with higher returns and greater risk, performance and mitigating the adverse effects of
compelling investors to carefully assess volatility market fluctuations. 14
levels before making decisions. Research shows Various factors influence financial market volatil-
that the volatility of investor returns is consis- ity, including macroeconomic announcements, un-
tently higher than the volatility of stock returns, expected events, and market dynamics. It signif-
with the difference becoming more pronounced icantly impacts investment decisions by affecting
over longer investment horizons. 5 stock returns and liquidity provision. Various sta-
tistical measures, such as realized volatility, abso-
Behavioral biases also significantly influence in- lute return volatility, and the GARCH model, are
vestor responses to market volatility. For in- employed to quantify volatility and inform risk
stance, herding behavior, driven by sentiment and management strategies.
loss aversion, can amplify stock market declines Specifically, this study applies machine learning
6
during volatile periods. Similarly, overconfidence
techniques to analyze volatility in the BIST100 in-
has been found to exacerbate irrational invest- dex to provide valuable insights for investors and
ment decisions, increasing market fluctuations. 7
policymakers. By employing clustering analysis
The mandatory implementation of risk manage-
and examining the relationship between volatil-
ment frameworks, such as Value at Risk (VaR),
ity and various financial ratios, we aim to offer
while essential for mitigating potential losses, may
a nuanced understanding of the factors influenc-
inadvertently contribute to market inefficiencies.
ing stock price volatility in the Turkish market.
Specifically, stringent risk management criteria
This approach contributes to the academic liter-
can cause market prices to deviate from funda-
ature and provides practical implications for risk
mental values, particularly when investor estima- management and investment strategies in emerg-
tions of stock prices vary significantly or under ing markets.
conditions of heterogeneous trading. 8
Several statistical measures quantify financial 2. Literature review
market volatility, offering unique insights into
market dynamics. Realized and absolute return Understanding the determinants of stock price
volatility are widely used nonparametric measures volatility is crucial for investors and policymak-
9
that directly assess the market. The General- ers. This literature review categorizes the find-
ized Autoregressive Conditional Heteroskedas- ings into key themes: determinants of stock price
ticity (GARCH) model is another prominent tool volatility, methodologies for volatility measure-
used for predicting and forecasting market volatil- ment and analysis, machine learning and regres-
ity, offering insights into the time-varying nature sion techniques in volatility analysis, the relation-
of volatility. 10 Additionally, news-based implied ship between volatility and financial ratios, and
volatility (NVIX) has emerged as a valuable mea- volatility spillover and market dynamics. By ex-
sure for capturing market uncertainty and pre- amining these interconnected themes, we aim to
dicting future volatility. 11 In light of the complex provide a comprehensive foundation for our study
nature of financial market volatility, this study on BIST100 firms and contextualize our research
aims to contribute to the existing literature by within the broader field of volatility analysis.
applying advanced analytical techniques to the Research on the determinants of stock price
Turkish market. volatility has identified various macroeconomic,
firm-specific, and behavioral factors provide a
Understanding and managing financial market comprehensive review, categorizing these deter-
volatility is essential for developing robust risk minants into macroeconomic factors (GDP, infla-
management strategies. Volatility plays a cru- tion, interest rates), company-specific fundamen-
cial role in portfolio management, option pricing, tals (earnings, dividend payments), and behav-
and market regulation, as it directly affects the ioral factors (investor sentiment). 15 They high-
valuation of financial assets and the stability of light the empirical inconsistencies across stud-
financial markets. 12 The growth of short volatil- ies, emphasizing the need for more unified frame-
ity strategies has also highlighted the potential works. This sets the stage for a closer exami-
risks associated with market crashes, emphasiz- nation of volatility determinants in different con-
ing the need for investors and regulators to pre- texts. As we transition from general determinants
pare for large, self-reinforcing technical unwinds to specific contexts, it becomes evident that re-
during heightened volatility. 13 Effective volatil- gional and economic factors play a crucial role in
ity management is vital for optimizing portfolio shaping stock price volatility.
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