Wednesday, 8 December 2010

A Quarter century of learning by great rewards and losses-Turkish retail investors in the Istanbul Stock Exchange

The ISE was opened in December 1985 in a rather haphazard manner with the command of the politicians in Ankara to make yet another token for their policy of financial deregulation. Although there was an OTC market in Istanbul populated by banks and independent brokers, share ownership was not a mass population phenomenon. In fact, so far it has never managed to become so. Foreign institutional investors known as "foreigners" in market parlance, have bought up more than 60 per cent of the portfolio value in the market in recent years.

In my new article, which is published in Competition and Change December 2010 issue, I trace the ISE's history back to 1985 and discuss the evolution of the Domestic Retail Investor figure over two and a half decades to find an answer to why Turkish household savers are not very enthusiastic about stock market investment. I then present evidence on the sense-making and investment activities from four brokerage houses which serve retail investors. The evidence is from 2008 and 2009, the crush and the recovery years of global financial markets. It is also a nice coincidence that this article is published when the ISE is celebrating its 25th year in operation.

My argument in the article is simply this, markets are multifaceted institutions of competition and conflict and they are not the aggregate of rational, cooperative and nice individuals as it seems to be espoused in modern finance theory. If one ignores this aspect and fails to win the trust of less powerful groups (domestic retail investor in the case of the ISE) and leaves them in the hands of opportunistic intermediaries, company owners, self-made domestic speculators and so on, then it is not surprising that retail investors in the ISE evolve into opportunistic and short-termist participants in the market or worse lose their fortunes and leave the market for good. This was unfortunately the case in the 1990s for many domestic retail investors in the ISE. But a more powerful factor in this evolution was the populist politicians of the 1990s who ran the Turkish economy on high budget deficits and high inflation in order to finance their unsustainable populist policies. Despite the great transformation in brokerage sector and the Turkish economy and politics in the new millennium, both of which were partially sanctioned by the global finance capital, the retail investor figure is still short-termist and opportunistic, like they used to be in the 1990s, but with a more informed perception frame about the markets thanks to the digital revolution in the global and Turkish financial markets. Maybe with more public campaigns and micro-market reforms for education and trust building among retail investors as it is now done by the ISE and the Capital Markets Board, we will have a totally new ISE in its half centenary in 2035!

Article's abstract is available here . A summary of the paper's significance for social theory and finance scholarship can be found here

PS: Many thanks to all my informants in Istanbul. This article is dedicated to them.

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