The effect of country risk on stock prices: an investigation on turkish banking sector

There are many factors that affect the stock price. Aim to predict the stock price with the help of ratios that based on the information of firm’s past is frequently applied method. In the literature, studying on the relationships between financial ratios and stock price is plenty. Studies using risk factors that affect the stock price is scarce. In this study, country risk components and financial ratios being effective in determining stock prices are investigated by dynamic panel data analysis. In this aim, data set belonging to 12 banks in Stock market Istanbul (BIST) and operating in banking sector over the period of 2003:1-2012:4 is used. Empirical results suggest that economic risk, political risk, financial risk and country risk have a negative effect on stock price. Moreover, it is found there is a negative relationship between financial leverage, firm size and stock price, however a positive relationship between probability and stock price