Abstract
This study investigates the dynamic transmission of global liquidity shocks to sector-level equity returns on Borsa Istanbul (BIST) over the period 2010–2023. Utilizing a Time-Varying Parameter Vector Autoregression (TVP-VAR) connectedness framework, we measure time-varying directionality and magnitude of return spillovers between global liquidity indicators—proxied by major central bank aggregate balance sheets and short-term shadow rate differentials—and key Turkish sectoral indices, including Banking (XBANK), Industrials (XUSIN), Services (XUSER), and Technology (XUMSK). The empirical results reveal that total spillover connectedness is highly dynamic, fluctuating between 38% and 72% across the sample period, with significant spikes coinciding with global macro-financial events such as the 2013 Taper Tantrum, the 2020 COVID-19 pandemic, and the 2022 global monetary tightening cycle. Global liquidity acts primarily as a net transmitter of return shocks to Turkish equity sectors, with the banking sector exhibiting the highest net directional vulnerability. In contrast, non-financial sectors, particularly technology and industrials, display relative resilience during normal economic conditions but experience heightened spillover uptake during periods of systemic liquidity distress. These findings offer actionable insights for international portfolio managers seeking optimal cross-border asset allocation and for macroprudential policymakers in emerging markets aiming to buffer equity markets against external financial contagion.
