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The effect of futures trading on spot market volatility: evidence from Turkish Derivative Exchange

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  • Samet Günay
  • Mahfuzul Haque

Abstract

High volatility during the 1990s in Turkey's stock market discouraged many small investors from entering the markets. The financial and economic stabilisation program which started in 2002, coupled with the setup of TURKDEX in 2005, allowed investors to hedge their financial risks. In this study, in conjunction with the GARCH, using EGARCH and TARCH models, we analysed the effect of futures trading in Turkish spot market volatility with BIST30 index that reflects the robust capital structure of the companies within the index. Unlike what is extant in the literature, this study uses two dummy variables which are for constant and slope coefficients and an independent variable, Dollar-Euro basket to improve the significance of the model, and a dummy variable to decrease spurious effects during the crises period of 2001 and 2008. Findings indicate with the setup of TURKDEX in 2005, the BIST30 index volatility level has decreased.

Suggested Citation

  • Samet Günay & Mahfuzul Haque, 2015. "The effect of futures trading on spot market volatility: evidence from Turkish Derivative Exchange," International Journal of Business and Emerging Markets, Inderscience Enterprises Ltd, vol. 7(3), pages 265-285.
    • Handle: RePEc:ids:ijbema:v:7:y:2015:i:3:p:265-285
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    Citations

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    Cited by:

    1. Muneer Shaik & Abhiram Kartik Lanka & Gurmeet Singh, 2021. "Analysis of lead-lag relationship and volatility spillover: evidence from Indian agriculture commodity markets," International Journal of Bonds and Derivatives, Inderscience Enterprises Ltd, vol. 4(3), pages 258-279.
    2. Jolanta Pasionek, 2021. "Response of the USD/MXN Exchange Rate to Macroeconomic Data," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 914-927.
    3. Wurm, Laura, 2021. "Strangling speculation: The effect of the 1903 Viennese futures trading ban," QUCEH Working Paper Series 21-09, Queen's University Belfast, Queen's University Centre for Economic History.

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