An Analysis of the Relationship between Business Confidence and Macroeconomic Factors: Türkiye Case

Abstract

Investor sentiment plays an important role in the all level of economic activities. Confidence as an indicator of investor sentiment has become an important and interesting concept in recent years. Confidence indicators are a way in assessing economic developments in the short term. The aim of this study is to analyze the long and short term relationship between the Real Sector Confidence Index and macroeconomic/financial variables for the period of January 2007 – December 2021. The Johansen Cointegration Test results prove a long-term cointegration relationship. Vector Error Correction Models for both macroeconomic and financial variables are statistically significant at the 5% level. In the short run, Manufacturing Capacity Utilization Ratio, Official Reserves, Domestic Debt Stocks, Real Exchance Rate, US Dollar/TRL Buying Rate, Non-Residents’ Stock Portfolio and Volatility Index have a statistically significant effect on the changes in Real Sector Confidence Index. Thus, this study informs investors to predict the effects of changes in the confidence index on financial instruments bilaterally and contribute to their investment decision.