E-ISSN 2039-2117 ISSN 2039-9340 Mediterranean Journal of Social Sciences MCSER Publishing, Rome-Italy Vol 4 No 10 October 2013 726 The Effect of Variations in Gold and Oil Prices on BIST 100 Index Dr. Ali Akgün Selcuk University Faculty of Economics and Administrative Sciences aakgun@selcuk.edu.tr Assistant Professor Dr. ù. Erem úahin Selcuk University Faculty of Economics and Administrative Sciences eremsahin@hotmail.com Associate Professor Dr. Baki Yilmaz Selcuk University Faculty of Economics and Administrative Sciences bakiyilmaz_42@hotmail.com Doi:10.5901/mjss.2013.v4n10p726 Abstract It is commonly known that the factors that are affecting stock prices are macroeconomic variables, returns on alternative investment means, political and social stability, developments in other countries, risk preferences of domestic and foreign investors, information regarding companies and manipulations. Due to the effect of financial globalization and as local capital has transformed into an international quality, individual country economies are now more fragile against not only internal dynamics but external factors as well. Under these circumstances, the Borsa Istanbul is a stock market which has recently been popular for investors who carefully chase and direct their investments toward this spot. The present study, except the generally adopted economical factors, investigates the effect of variations in gold and oil prices on BIST 100 index econometrically. The reason for analyzing the effect of gold prices is that the global interest toward gold metal has increased overwhelmingly which caused major central banks of both developing and developed world countries increased their gold reserves. This tendency created a serious increased demand for gold which accordingly has led increased prices in the global market and affected other macro economical variables. The reason for analyzing oil prices is that fluctuation in oil prices affects economical factors both directly and indirectly. Whereas the BIST 100 index has positive relationship with oil prices; it has negative relationship with gold prices. Keywords: Oil prices, gold prices, Johansen co-integration test, BIST 100 Index 1. Introduction It is known that there is parallelism between economical development and advancement of capital markets. Especially capital markets that are one of the significant economy indicators has great importance regarding sourcing capital from the financial markets and also using savings of individual and corporate investors effectively and productively. It is known that stock markets have basic functions to supply the capital requirements of companies, to contribute extensional distribution of capital to all sects of the society, to reduce risks of investors and to supply information stream from companies to investors. Borsa Istanbul has been maintaining these functions for years increasingly. Stock markets have gained importance and developed in last two decades especially in developing countries as a result of decreasing interest rates and inflation and of embracing more liberal economic policies by those countries (Karan, 2001, p.:41). Prices in stock markets emerge based on previous company performances, future expectations and economic condition. Stock prices reflect the investors’ estimations regarding expected returns and future cash flows from a certain stock; and these estimations are affected from the general condition of the national economy and international economy. Since stocks are a risky investment means for investors, they require information about the factors affecting stock prices and their significance. The relationship between stock prices and macro economical factors affecting stock prices has been investigated by numerous researchers. Although there were different results found due to various