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Index warrant trading and the underlying index volatility: The case of Istanbul Stock Exchange

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Listed:
  • Yusuf I. MUGALOĞLU

    (İstanbul Menkul Kıymetler Borsası)

Abstract

The Istanbul Stock Exchange introduced warrant trading in 2010. Index warrant trading was expected to lower the volatility of the underlying ISE-30 index. This study examines the effect of index warrant trading on the volatility of the index. The research period was divided into two: the pre-warrant period and post-warrant period. The pre-warrant period, from August 13, 2009, to August 12, 2010, preceded the introduction of index warrant trading. The post-warrant period extended from August 13, 2010, to August 2, 2011. In order to capture the ex-ante and ex-post varying volatility of the underlying index, the study employed a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model. For the purpose of the study, a GARCH (1,1) model with a dummy variable was developed. The results show that index warrant trading did not lead to a decline in the volatility of the underlying ISE-30 index during the research period.

Suggested Citation

  • Yusuf I. MUGALOĞLU, 2012. "Index warrant trading and the underlying index volatility: The case of Istanbul Stock Exchange," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 27(318), pages 95-110.
    • Handle: RePEc:iif:iifjrn:v:27:y:2012:i:318:p:95-110
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    More about this item

    Keywords

    Index based warrants; Volatility; GARCH; Istanbul Stock Exchange; ISE-30 index;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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