Авторы: ,

Рубрика: Экономика и управление

Опубликовано в Молодой учёный №23 (103) декабрь-1 2015 г.

Дата публикации: 04.12.2015

Статья просмотрена: 54 раза

Библиографическое описание:

Минга А., Андони М. Analysis of asset allocation during the business cycle in Turkey // Молодой ученый. — 2015. — №23. — С. 599-603. — URL https://moluch.ru/archive/103/23817/ (дата обращения: 25.04.2018).


This paper analyses the performance of different asset classes during the last 20 years in Turkey, following the business cycle approach. The performance of the asset classes is analysed based on scientific literature review as well as a stastistical analysis.

The assest classes taken into consideration are: Stocks, Bonds, Commodities and Gold, for the period 1991–2011. The study adds information on how these assests perform during the four stages of the business cycle: Upward, Peak, Downturn and Recenssion.

The results show that different asset classes have different return and different risk during different periods of the business cycle. Althought, business cycle’s period are post-evaluated, meaning that it is difficult to predict in which business cycle phase the economy is currently,still the finding that assest classes have dissimiliar performance is of significant importance for the decision-making of portfolio management.

Keywords: asset classes, asset allocation, business cycle, portfolio management


  1.                 Introduction

The propotion of portfolio that should be placed in different asset classes to minimize risk and maximize returns is one of the main challenges for investors. While investors decide on bonds, cash or equity, mainiting flexibility is the next difficulty. The assest allocation is a strategic decision, but in the same time should be a dynamic process, which allows for changes in the asset classes allocation as the economic conditions change.

The macroeconomic changes, usually during a decade, form what in economic terms is called business cycle. The business cycle goes through four different cyclial phases, and the question that rises for the investors is whether these phases create a differentiation in asset’s price performance. In fact, they do create a differentiation and after severeal previous researches there is a generally broad agreement among many academics and market participants that economic factors influence asset prices (Emsbo-Mattingly, 2012).

Sharpe (1992) argues that since the asset allocation decision is of a very significant importance, assest’s managers perform an assests allocation analysis with the help of a set of asset classes. The purpose of this article is excately to facilitate the analysis, through making them aware which asset classes performs better during which business cycle phase.

As it is anticipated, the expectation is broad and dissimiliar movements of assets classes during the business cycle (Adjasi & Biekpe, 2006). For example, since stock returns vary inversely with the economic condition, they decrease throughout economic expansions and become negative during the first half of recessions (DeStefano, 2004).

The only concern in this paper is that the study of business cycles in an economy is done back-ward looking. This measn that analysis of the economic data and the business cycle phase is done after it has passed, so realising in which business cycle phase the economy stands currently and even more anticipate which business cycle phase with the next, is a real challenge for investors, who need to rely on their own analysis and instict. However, this paper makes a differnce also in this sense. Despite history has shown that business cycle are not identical, some are shorter, some are quicker, they havecommon charasteristics like the fact that they are cyclial and that the same asset classes perform more or less in the same way during the same phase of different business cycles. Thus, investors have a new choice rather than relying only in their own analysis or instict.

  1.              Literature Review

The business cycle also has seasons or phases, where certain sectors of the economy fall in and out of favor. For investors, the key lies in the fact that the cyclical turning points of bonds, stocks and commodities are all part of the business cycle progression.

The thesis that there is a positive relationship between stock market development and economic growth is largely supported by many studies. Adjasi and Biekpe (2006) in their study conducted for 14 African countries with a dynamic panel data analysis, supported the above thesis and furthermore showed that the influence of stock market development on economic growth is more significant for countries classified as upper middle income economies.

DeStefano (2004) stressed once more that expected stock returns vary inversely with economic conditions. During the economic expanison the stock returns decrease and during the early stages of recessions they become negative. While during the second half of recessions, returns are higher suggesting an important role for expected earnings.

Nawrocki and Carter (1994) in their study for stock assets in USA has gone even further, concluding that business cycles influence the performance of stock portfolios both within and outside the United States and has implications for international diversification. Taking this for granted, it is suggested to invest internationally as an important part of an investment manager’s strategy since the international markets typically follow an economic cycle that is different from the investor’s country economic cycle.

Also the firms accession to the bond’s market vary over the business cycle (Santos, 2003). In his study conducted for the last two decades in the bond market, he argues that there is a cost increasing in accessing the bond market during recenssion.

The performance of commodities, like that of other major asset classes, is tied to general economic conditions. Because economies move in cycles, constantly alternating between expansions and recessions, commodities react according to the current economic phase.

Roeca and his advisor Sannikov (2011) in their article for UCLA Economic Journal have explained that commodities tend to do well during periods of late expansions and early recessions. The reason is that, as the economy slows, key interest rates are decreased to stimulate economic activity — this tends to help the performance of commodities. Stocks and bonds, on the other hand, don’t perform as well during recessions.

They have found evidences that before the 2008–2009 recession, commodities futures returns and stocks returns were lowly correlated throughout the entire business cycle. The recent recession witnessed unprecedented co-movements between stock and commodities futures returns. Thus, their study provides clear evidence linking commodities futures returns and stock returns during the late stages of the business cycle.

Moreover, Kang (2012) explains that investors often look to commodities as a way to potentially gain enhanced portfolio diversification, protection against inflation, and equity-like returns. So, commodities can act as a portfolio diversifiers since they have low or negative correlation with traditional asset classes over the long-term.

Gold is one of the commodities that receives a lot of attention (as well as oil) and its price is very volative. Beaudry and Portier (2011) have argued the contrary, that phenomenas like gold rush can drive business cycle fluctuations.

Lastly, to summarize based on Pring (2013): During early recession — interest rates start to fall and bonds rally, then stocks begin to rally; early recovery — commodities begin to rally, interest rates trough and bonds peak; cycle peak — stocks peak and slowing growth-commodities peak.

  1.           Analyses of the Business Cycle

Alternative Investments Proportion (AIP) is considered to be the new framework of asset allocation, because it overpasses the limitations of traditional allocation through including: Beta Return (return from asset classes), Alpha return (return from manager’s skills) and Liquidity (premium from holding liquid investments) (Morgan Stanley, 2011). The Beta returns are related with the macroeconomic factors such as GDP, inflation, interest rates and all of them undisputedly are major elements composing business cycle.

Business cycle is composed of 4 stages, so that broad movements can be analyzed. According to DeStefano (2004), surprisingly, average returns decrease during expansion and reach lowest level during the beginning phase of recession. This can be explained with the wrong expectation for the future from not knowing how much will last a period of the business cycle. A great time of the decision-making on investments is spent trying to forecast which is the next move and this anticipating process in definitely difficult. The length and the strength of a business period remains a question mark, since business cycles differ on their impact on the asset classes (Woodford, 2010). It should be also taken in consideration that in developing countries, compared with the developed one, business cycle are shorter and more volatile (Alp, 2012). However, the biggest mistake is to deny the existence of the business cycle. Although difficult to predict, investors should always keep an eye on it.

An analysis of the Turkey’s business cycle shows that during the decade 1990–2000 there was a very high volatility, inflation and government deficit (Alp, 2012). During these years, periods of high growth have been frequently interrupted by periods of recessions. Due to the financial and banking crisis and also other factors such as Gulf War (1991) and Marmara earthquake (1999), Turkey experiences five periods of recession: 1989, 1994, 1999, 2001, and the latest crisis of 2008 (Senyuz, 2010). Generally the recession has been short, while the expansions are characterized by over six percent output growth (Altug & Bildirici, 2010). This results can fit with the Turkey’s status of being an emerging market and correspond with the level of the amplitude of the expansion with is 20.35 %.

According to Senyuz’s study (2010), when the economy in Turkey has been in recession for a quarter, there is a 45 % probability that the following quarter will experience recession as well. The situation is optimistic also during expansions, indicating that there is a 90 % probability that a period of expansion will be followed by another quarter of expansion.

Nowadays, there are certain leading indicators, like OECD Economic Forecast or OECD Business Clock, which give signals of the next business cycle phase. These data not only provide an opportunity to correct the current economic mistakes, but also to anticipate future policies. For example, based on the OECD Economic Forecast (November 2013), Turkey’s GDP growth for the years 2014–2015 is expected to be 4 %, while based on the OECD Business Clock (November 2013) the Business Confidence Indicator rated 102.16. Lastly, the OECD Composite Leading Indicator[1] (CLI) in November 2013 rated 98.8, which in decreasing and below 100, indicating a slow-down compared to the period of one year before.

  1.           Asset classes’ analyses during the business cycle
  1.                  Data

In order to analyse the business cycle, this paper takes as refernce the CLI Indicators for Turkey for the period 1990–2010. The different phases of business cycle will be identified as below:

                     CLI increasing and above 100 indicates a period of expansion (peak)

                     CLI decreasing and above 100 indicates a period of recession

                     CLI decreasing and below 100 indicates a period of slowdown

                     CLI increasing and below 100 indicates a period of recovery

The data for the asset classes are primarily taken from Thomson Reuters Data (2013). For the Gold Asset Class the data is taken from World Gold Council. As Bonds’ Asset Class representative is taken in consideration Turkey Treasury Bills with 12 months maturity, from Turkey Central Bank. Stocks data are taken from Borsa Istanbul 100 Index at Bloomberg.com and it is composed of all National Market companies expect investment trusts. Lastly, in Commodities Asset Class are included prices of chemical and steel goods.

  1.                Methodology

The following table contains calculation done with respect to the profit and the risk of each asset class.








Growth per period

- 82 %

3341 %

279 %

641 %


-16 %

40 %

27 %

33 %


Ulcer Index[2]

8 %

2 %

31 %

15 %

Standard dev.


1.4 %

4.2 %

5.3 %

6 %


CAGR/ Ulcer Index





CAGR/ St. Dev.











Quarterly growth






-1.12 %

3.52 %

2.4 %

6.6 %


0.4 %

7.68 %

2.72 %

4.64 %


1.12 %

1.92 %

6.96 %

4.44 %


1.8 %

-1 %

-0.32 %

-4.12 %

Standard Dev.






3.10 %

1.10 %

4.06 %

3.43 %


2.83 %

1.56 %

3.82 %

3.63 %


2.85 %

1.55 %

4.98 %

4.96 %


4.57 %

2.14 %

5.17 %

5.71 %

Ulcer index






7.0 %

1.3 %

14.8 %

16.0 %


7.0 %

1.1 %

40.6 %

11.8 %


8.4 %

1.1 %

32.5 %

11.7 %


9.2 %

1.8 %

43.3 %

17.8 %


  1.              Results

For all the period, stocks perform better than all the other assets. They provide high returns with a moderate risk. Considering that Turkey is an emerging market, there is a lot of space for such investments. On the other part, T-bills performance is unexpected. However, this is related with one of the main limitations of this research paper: the T-bills data. There are taken in consideration only 12 months maturity T-bills for the period 2003–2010, which are definitely not enough to represent the performance of Bonds Asset Class. Furthermore, considering that the T-bills are issued from the Central Bank, public institutions in Turkey do not pose a highly good reputation.

From the separation of full time into periods of business cycles, it can be identified that stocks and commodities perform better during recovery and expansion. Gold perform better during slowdown, while T-bills during recession. So, stocks and bonds are the reverse of each other.

Apart from the returns, also the risk varies over the business cycle. As expected, both standard deviation and Ulcer Index increases during recession period, reaching their highest values. Then the ratio returns/ standard deviation or returns/Ulcer Index indicates that stock should be the preferred asset class to invest during recovery and expansion, gold is the asset class which performs the best during slowdown, while bonds perform better during recession.

  1.               Conclusions

In conclusion, there is a strong correlation between assets’ prices changes and the periods of the business cycle. Dissimilar performance of asset classes is performed during periods of the business cycle.

Generally, the risk of all asset classes increases during Recession. Considering returns, during recovery and expansion is better to invest on stocks, during downturns to invest on gold and during recession to invest on bonds.

Although it is very difficult to anticipate the turning points of the business cycle, investors should always seek for signals for the future market expectations.




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  2.                Borsa Istanbul 100 Index. (2013). Retrieved January 2014, from http://www.bloomberg.com/quote/XU100:IND
  3.                OECD Business Clock. (2013, November). Retrieved January 2014, from http://stats.oecd.org/mei/bcc/default.html
  4.                OECD Composite Leading Indicator. (2013, November). Retrieved January 2014, from http://stats.oecd.org/index.aspx?queryid=6617#
  5.                OECD Economic Forecast. (2013, November). Retrieved January 2014, from http://www.oecd.org/economy/turkeyeconomicforecastsummary.htm
  6.                The Central Bank of the Republic of Turkey. (2013). Retrieved January 2014, from http://www.tcmb.gov.tr/yeni/eng/
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[1] Composite Leading Indicator – a tool developed from OECD, whose ups and downs correspond to those of business cycle, anticipating turning point 6 -9 months before.

[2] Ulcer Index - is a method for measuring investment risk through analyzing the depth and duration of draw-downs in prices from earlier highs ( Peter G. Martin, 2012) http://www.freeman.tulane.edu/trading/pdf/UlcerIndexExplained.pdf

Основные термины (генерируются автоматически): business cycle, asset classes, business cycle phase, different asset classes, commodities futures returns, business cycles, business cycle approach, OECD Business Clock, recession, business cycle progression, business cycle fluctuations, entire business cycle, OECD Economic Forecast, stock returns, stock market development, asset classes allocation, different business cycles, country economic cycle, asset allocation, economic conditions.

Ключевые слова

Классы активов, Распределение активов, бизнес цикл, Управление портфелем


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