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The aim of this study is to determine the effect of macroeconomic variables on foreign portfolio investments (FPI) in Turkey for the period of 1998-2012. We test stationarity of macroeconomic variables by using ADF and Zivot-Andrews unit-root tests with one structural break. We have used factor analysis for both reduction and classification of twenty three variables. To determine cointegration among variables, Johansen cointegration test was applied and we saw that variables are cointegrated. Finally, we used OLS with structural break model. We found that, deposit interest rate, gross national income and current account balance have had a positive effect on foreign portfolio investment. The effect of deposit interest rate on FPI has turned to negative, after 2003, because of structural break resulted from inflation targeting starting with The New Economic Stability Program in Turkey. We saw that with the start of the new economic stability program by Turkish government, dependent variable, average foreign portfolio investment growth has turned to positive post-2003.
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