Volatility Spillover between Bist 30 Futures and Spot Markets: A DCC-GARCH Analyses

Abstract

Investors should be aware of the information flow across the markets to develop investment policies. The volatility spillover relationships between spot and futures markets includes significant knowledge for the composition of optimal portfolios. In the present study, the relationship between spot and futures markets in Turkey was investigated based on BIST 30 index end-of-day price data for the period between February 2, 2006, and April 30, 2020. The volatility spillover effects and the time-varying dynamic conditional relationships between the markets were investigated with the DCC-GARCH model. The findings reveal the existence of a two-way volatility spillover between markets and a strong dependency between markets' return volatilities. In addition, the effect of negative and positive shocks on market volatility was analyzed with the GJR-GARCH model and the results demonstrated that both markets responded strongly to negative shocks when compared to positive shocks.

Volatility Spillover in the Turkish Financial Market: A QVAR Analysis

“…Unfortunately, these models fail to accurately estimate spillover effects during severe market conditions as they disregard the tail distribution. Additional studies such as Abioğlu (2021), Akkoc and Civcir (2019), Alola et al (2019), Bajo-Rubio et al (2017, Can Ergün and Karabıyık (2020), Cevik et al (2020), Coskun and Taspinar (2022), Dursun et al (2021), Gürbüz and Şahbaz (2022), Kara et al (2022), Karakaya and Kutlu (2023), Özdemir et al (2018), Ustaoğlu (2022), andVardar andAydogan (2019) have been conducted to investigate the return and/or volatility spillovers between major financial markets, with a particular emphasis on the Turkish economy.…”