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Detecting risk transmission from futures to spot markets without data stationarity: Evidence from Turkey's markets

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Author Info

  • Alper Ozun
  • Erman Erbaykal
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    Abstract

    Purpose – The purpose of this paper is to analyze cointegration and causality relationships between spot and futures markets in Turkish foreign-exchange markets. Design/methodology/approach – The research employs Bounds cointegration test and Toda-Yamamoto causality test to detect a possible risk transmission between spot and futures markets. Time series of Turkish spot and futures foreign-exchange markets from January 2, 2006 to March 25, 2008 on a daily basis are used for empirical analysis. Findings – The empirical tests suggest that there is unidirectional causality running from future exchange-rate market to spot market implying that foreign-exchange markets have informational efficiency in Turkey. Originality/value – The paper has originality in both employing Bounds test and Toda-Yamamoto test to examine the relationship between spots and derivative markets, and in being one of the first empirical papers examining Turkish futures markets. In addition, the paper presents a guide on how Bounds and Toda-Yamamoto tests can be applied to detect interactions among markets without data stationarity.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Risk Finance.

    Volume (Year): 10 (2009)
    Issue (Month): 4 (August)
    Pages: 365-376

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    Handle: RePEc:eme:jrfpps:v:10:y:2009:i:4:p:365-376

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    Web page: http://www.emeraldinsight.com

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    Related research

    Keywords: Emerging markets; Foreign exchange; Futures markets; Risk analysis; Turkey;

    References

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    12. Goodhart, Charles, 1988. "The Foreign Exchange Market: A Random Walk with a Dragging Anchor," Economica, London School of Economics and Political Science, vol. 55(220), pages 437-60, November.
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    14. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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