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

Year 2022, Volume: 20 Issue: 43, 1 - 27, 31.01.2022

Esen Kara , Adem Anbar , Özer Arabacı

https://doi.org/10.35408/comuybd.827041

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.

Keywords

Futures Market, Spot Markets, Volatility Spillover, BIST 30 Index, DCC-GARCH Model.

VOLATILITY SPILLOVER BETWEEN BIST 30 FUTURES AND SPOT MARKETS: A DCC-GARCH ANALYSES

Abstract

In terms of investors, it is essential to be aware of the flow of information across markets and build up investment policies in line with this information. The volatility spillover relationships between futures and spot markets contain important information in the context of optimal portfolio composing. In this study, the relevant relationship between futures and spot markets in Turkey were investigated in the context of BIST 30 index, using the end-of-day pricing data for the period from 2 February 2006 to 30 April 2020.
The volatility spillover effects and the time-varying dynamic conditional relationship between markets was investigated by DCC-GARCH method. The results indicate that there is a strong dependence between markets' return volatilities. Also a significant bidirectional relationship is found in volatility transmissions between the markets. The results of GJR-GARCH analysis, in order to examine the effect of negative and positive shocks on the markets' volatilities indicate that both markets responded more strongly to their negative shocks than to positive shocks. Findings generally indicate that there is a bidirectional causality relationship between price and volatility changes of the markets. This result supports the hypothesis that both markets play a role in volatility spillover.

Keywords

Spot Market, Futures Market, Vplatility Spillover, BIST 30 Index, DCC-GARCH Model

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