Return Predictability of Turkish Stocks : An Empirical Investigation

This paper provides a comprehensive analysis on the stock return predictability in Turkey, January 1997 to July 2011, by employing both portfolio method and cross-sectional regressions. In the risk-related predictors, we found predictive power of beta, total volatility, and idiosyncratic volatility. The cheapness variable book-to-market ratio is the most important return predictor for the stocks traded in the Istanbul Securities Exchange. We also found that regrouping the stocks as small and large according to the median value of the market capitalization of the stocks adds important insights to the analysis. Our results show that the set of large stocks in the Istanbul Securities Exchange is the least predictable set of stocks and no particular predictor should be considered reliable in predicting the returns of the large stocks set