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Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange

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  • Ali F. Darrat
  • Omar M. Benkato

Abstract

This paper analyzes stock returns and volatility relations between the Istanbul Stock Exchange (ISE) and the global market as represented by stock markets in the US, the UK, Japan and Germany. Results from monthly data and multivariate cointegration tests suggest that the ISE became significantly integrated in the global market only in the period following market liberalization in late 1989. We also find evidence based on GARCH estimations that capital liberalization actually mitigated, rather than intensified, volatility in the ISE. Our results further suggest that the Asian crisis in mid-1997 and the consequent Russian economic meltdown in mid-1998 are partly responsible for the recent excessive volatility in the Turkish market. The results also identify the US and the UK markets as dominate sources of volatility spillovers for the ISE, even in the period following the Asian-Russian crises. Consequently, it appears that the two matured markets of the US and the UK shoulder significant responsibility for the stability and financial health of smaller emerging markets like the ISE. Copyright Blackwell Publishers Ltd, 2003.

Suggested Citation

  • Ali F. Darrat & Omar M. Benkato, 2003. "Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30, pages 1089-1114.
  • Handle: RePEc:bla:jbfnac:v:30:y:2003-09:i::p:1089-1114
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    1. Stephan Haggard, 2000. "Political Economy of the Asian Financial Crisis, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 107.
    2. Diebold, Francis X & Kilian, Lutz, 2000. "Unit-Root Tests Are Useful for Selecting Forecasting Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(3), pages 265-273, July.
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    Cited by:

    1. Ben Rejeb, Aymen & Arfaoui, Mongi, 2016. "Financial market interdependencies: A quantile regression analysis of volatility spillover," Research in International Business and Finance, Elsevier, vol. 36(C), pages 140-157.
    2. He, Hongbo & Chen, Shou & Yao, Shujie & Ou, Jinghua, 2014. "Financial liberalisation and international market interdependence: Evidence from China’s stock market in the post-WTO accession period," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 434-444.
    3. Aymen Ben Rejeb & Adel Boughrara, 2015. "Financial integration in emerging market economies: Effects on volatility transmission and contagion," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 15(3), pages 161-179, September.
    4. Ceylan Onay & Gözde Ünal, 2012. "Cointegration and Extreme Value Analyses of Bovespa and the Istanbul Stock Exchange," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(1), pages 66-90, February.
    5. Marashdeh, Hazem, 2005. "Stock Market Integration in the MENA Region: An Application of the ARDL Bounds Testing Approach," Economics Working Papers wp05-27, School of Economics, University of Wollongong, NSW, Australia.
    6. Priyanka Singh & Brajesh Kumar & Pandey, Ajay, 2008. "Price and Volatility Spillovers across North American, European and Asian Stock Markets: With Special Focus on Indian Stock Market," IIMA Working Papers WP2008-12-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
    7. Chuang, I-Yuan & Lu, Jin-Ray & Tswei, Keshin, 2007. "Interdependence of international equity variances: Evidence from East Asian markets," Emerging Markets Review, Elsevier, vol. 8(4), pages 311-327, December.
    8. Osamah AlKhazali, 2011. "Does infrequent trading make a difference on stock market efficiency?: Evidence from the Gulf Cooperation Council (GCC) countries," Studies in Economics and Finance, Emerald Group Publishing, vol. 28(2), pages 96-110, June.
    9. Mehdian, Seyed & Nas, Tevfik & Perry, Mark J., 2008. "An examination of investor reaction to unexpected political and economic events in Turkey," Global Finance Journal, Elsevier, vol. 18(3), pages 337-350.
    10. Ugur Ergun & Abu Hassan Shaari Mohd Nor, 2010. "The Stock Market Relationship between Turkey and the United States under Unionisation," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 6(2), pages 19-33.
    11. Arago-Manzana, Vicent & Fernandez-Izquierdo, Maria Angeles, 2007. "Influence of structural changes in transmission of information between stock markets: A European empirical study," Journal of Multinational Financial Management, Elsevier, vol. 17(2), pages 112-124, April.
    12. Aymen Ben Rejeb, 2013. "Volatility spillovers and contagion: an empirical analysis of structural changes in emerging market volatility," Economics Bulletin, AccessEcon, vol. 33(1), pages 56-71.
    13. Alar Kein, 2005. "An Investigation of the Role of Cross-Border Spillover of Returns and Volatility in the Estonian Stock Market," Working Papers 120, Tallinn School of Economics and Business Administration, Tallinn University of Technology.

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