Vol. 10 No. 2 (2022): Business & Management Studies: An International Journal

Chaotic dynamics in Turkish foreign exchange markets

Assoc. Prof. Dr., Department of Economics, Galatasaray University, Istanbul, Turkey

Published 2022-06-25


  • Kaos, Lyapunov Katsayısı, Verimli Piyasalar Hipotezi, Sepet Kur, Türk Lirası
  • Chaos, Lyapunov Exponent, Efficient Market Hypothesis, Exchange Rate, Turkish Lira

How to Cite

ÖZKAYA, A. (2022). Chaotic dynamics in Turkish foreign exchange markets. Business & Management Studies: An International Journal, 10(2), 787–795. https://doi.org/10.15295/bmij.v10i2.2068


The financial systems, and particularly foreign exchange markets, are complex. This study investigates whether the Turkish foreign exchange market exhibits chaotic dynamics. To achieve this goal, we focus on a currency basket composed of equally-weighted Euro and US Dollar against the Turkish Lira. We compute Lyapunov exponents (LE) embedded in daily data of the currency basket from 2018M05D01 to 2022M05D23. The time interval under examination also indicates Turkey's alternative economic and financial policies have been preferred. We employed the phase space reconstruction method, which enables the detection of multiple equilibria in foreign exchange markets due to recent monetary policy applications. The study's main findings demonstrate that the daily currency basket data exhibit chaotic behaviour, and the associated maximal Lyapunov exponent is positive. An increase in complexity may recursively cause volatility in exchange rates for some time interval. Therefore, in policy-making, finding the root factors that sustain the chaotic behaviour of exchange rates and preventing multiple equilibria on expectations is crucial, which leads back to volatility. The study findings have important implications for interventions of Central banks as well as portfolio and risk management.


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