4. Oil Prices and Banking Stocks Nexus: Evidence From an Oil-Dependent Country

We investigate the impact of oil prices on Borsa Istanbul banking index during 2004-2016 and for the periods before and after the 2008 crisis. We especially examine banking stock performances since any significant factor affecting financial institutions, would probably have an impact on the whole economy due to the contagion. Furthermore, banking index is the leader index in Borsa Istanbul with 36% of market capitalization of Borsa Istanbul and financial institutions in Turkey experienced a significant mergers and acquisitions flow in the last decade. Hence, the interrelationship between foreign and domestic markets has intensified, significantly. Our sample period is between 2004 and 2016 and we employ Granger-causality to capture the predictive power of oil prices on stock market and generalized impulse responses to analyze the sign and duration of the relationship. Results reveal that financial and commodity markets are highly integrated and oil is a significant commodity for Turkish market. Furthermore, banking equities seem to benefit from oil price increases between 2008-2016 and therefore one should include banking stocks into their portfolios, when commodity prices are surging.