The Effect of Energy Prices on Bist Industrials Index: An Investigation with Structural Var (SVAR) Model

Abstract

Purpose – Portfolio diversification offers investors the opportunity to distribute their risks. However, when diversifying, it is necessary to evaluate in detail the interrelationships of the investment instruments to be added to the portfolio. This study aims to determine the relationship between the BIST Industrial Index and natural gas and oil, which are important inputs of the production line. Design/methodology/approach – In this study, the relationship between BIST Industrial Index and natural gas and oil was investigated using the Structural VAR Model (SVAR) using the daily closing data for the period 02.01.2013-29.12.2023. Analysis results were supported by Granger causality test, impulse-response functions and variance decomposition. Findings – The results of this study revealed the effect of energy prices on the BIST Industrial Index by taking into account structural breaks. The Granger causality test results showed that Brent oil prices had an effect on the BIST Industrial Index and the breaks in the index, while natural gas prices had no significant effect on the index. Although oil prices had a negative effect on the index, when evaluated in terms of the effect of structural shocks, it was concluded that each variable was affected by its own internal shocks and that this effect was short-lived. The variance decomposition results revealed that almost all of the change in BIST Industrial until the tenth period, with a rate of 98.4%, was due to its own internal shocks. Discussion – It can be said that investors should not ignore the relationship of natural gas and oil prices with the BIST Industrial index when deciding to invest in the BIST Industrial index. In particular, the fact that the increase in natural gas prices may cause a price decrease in the stocks in the BIST Industrial Index may be helpful information in the investment decision stage.