Time-Varying Sectoral Responses to Global Economic Policy Uncertainty: A DCC-GARCH Analysis of Borsa Istanbul

Abstract

Purpose – This study aims to examine the time-varying sectoral effects of global economic policy uncertainty (EPU) on Borsa Istanbul. Focusing on the hypothesis that U.S.-based EPU shocks generate heterogeneous and dynamic responses across different sectors in emerging markets like Türkiye, the research seeks to reveal sector-specific patterns of vulnerability to global uncertainty.
Design/methodology/approach – Using monthly data covering the period from January 2010 to March 2025, the study analyzes the dynamic relationships between the U.S. EPU index and the BIST 100 general index along with eight major sectoral indices (banking, industrials, services, technology, electricity, textiles, machinery-equipment, and metals). A multivariate DCC-GARCH model is employed to capture the time-varying conditional correlations. Model validity is statistically verified, and the evolution of correlation coefficients is interpreted in light of both sectoral structures and global shocks.
Results – The results indicate that the correlations between sectoral returns and EPU are predominantly negative and weak, but highly unstable over time. Significant fluctuations, particularly during the COVID-19 pandemic, reveal that global uncertainty shocks do not impact all sectors uniformly. The banking index exhibits the highest level of comovement with other sectors, confirming its systemic role in Türkiye’s financial ecosystem.
Discussion – The findings suggest that economic policy uncertainty does not exert uniform effects across markets. Sectoral responses vary according to industry characteristics and external exposure, underscoring the need for flexible, sector-oriented policy tools. For policymakers, the ineffectiveness of one-size-fits-all interventions is evident, while investors are encouraged to adopt adaptive strategies sensitive to time-varying sectoral risk structures.