Relationship between Political and Financial Risks in Turkey: Evidence from Fourier Cointegration Analysis Regarding Institutional Structures

Institutional structure and quality of management are the main elements that form the political risks. Political threats are directly linked to the institutional structure and the institutional design. Political risks increase if the government mechanisms fail. Increasing institutional quality reduces the political risks and positively impacts the financial risks. Monthly data from different indices are used to analyse the relationship between Turkey's political risks and financial risks between 2002 and 2015. According to the Fourier analysis of cointegration, there is a long-term relationship between the political and financial risks. Besides, as per the Fully Modified Ordinary Least Squares (FMOLS) findings and the Dynamic Ordinary Least Squares (DOLS) models, an increase in the political risk increases the financial risk.