IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v387y2008i12p2837-2845.html
   My bibliography  Save this article

The impact of futures trading on volatility of the underlying asset in the Turkish stock market

Author

Listed:
  • Kasman, Adnan
  • Kasman, Saadet

Abstract

This paper examines the impact of the introduction of stock index futures on the volatility of the Istanbul Stock Exchange (ISE), using asymmetric GARCH model, for the period July 2002–October 2007. The results from EGARCH model indicate that the introduction of futures trading reduced the conditional volatility of ISE-30 index. Results further indicate that there is a long-run relationship between spot and future prices. The results also suggest that the direction of both long- and short-run causality is from spot prices to future prices. These findings are consistent with those theories stating that futures markets enhance the efficiency of the corresponding spot markets.

Suggested Citation

  • Kasman, Adnan & Kasman, Saadet, 2008. "The impact of futures trading on volatility of the underlying asset in the Turkish stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(12), pages 2837-2845.
    • Handle: RePEc:eee:phsmap:v:387:y:2008:i:12:p:2837-2845
    DOI: 10.1016/j.physa.2008.01.084
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437108001052
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/j.physa.2008.01.084?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Evangelos Drimbetas & Nikolaos Sariannidis & Nicos Porfiris, 2007. "The effect of derivatives trading on volatility of the underlying asset: evidence from the Greek stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 17(2), pages 139-148.
    2. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    3. Stein, Jeremy C, 1987. "Informational Externalities and Welfare-Reducing Speculation," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1123-1145, December.
    4. Powers, Mark J, 1970. "Does Futures Trading Reduce Price Fluctuations in the Cash Markets?," American Economic Review, American Economic Association, vol. 60(3), pages 460-464, June.
    5. Engle, Robert F & Ng, Victor K, 1993. "Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-1778, December.
    6. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    7. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    8. Wee Ching Pok & Sunil Poshakwale, 2004. "The impact of the introduction of futures contracts on the spot market volatility: the case of Kuala Lumpur Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 14(2), pages 143-154.
    9. McClain, Katherine T. & Humphreys, H. Brett & Boscan, Atahualpa, 1996. "Measuring risk in the mining sector with ARCH models with important observations on sample size," Journal of Empirical Finance, Elsevier, vol. 3(4), pages 369-391, December.
    10. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    11. Hirotugu Akaike, 1969. "Fitting autoregressive models for prediction," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 21(1), pages 243-247, December.
    12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    13. Harris, Lawrence, 1989. " S&P 500 Cash Stock Price Volatilities," Journal of Finance, American Finance Association, vol. 44(5), pages 1155-1175, December.
    14. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    15. Joao Paulo Tome Calado & Maria Teresa Medeiros Garcia & Sergio Emanuel Tome Mendes Pereira, 2005. "An empirical analysis of the effects of options and futures listing on the underlying stock return volatility: the Portuguese case," Applied Financial Economics, Taylor & Francis Journals, vol. 15(13), pages 907-913.
    16. Hyun-Jung Ryoo & Graham Smith, 2004. "The impact of stock index futures on the Korean stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 14(4), pages 243-251.
    17. Cox, Charles C, 1976. "Futures Trading and Market Information," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1215-1237, December.
    18. Bray, Margaret M, 1981. "Futures Trading, Rational Expectations, and the Efficient Markets Hypothesis," Econometrica, Econometric Society, vol. 49(3), pages 575-596, May.
    19. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-228, August.
    20. Pierluigi Bologna & Laura Cavallo, 2002. "Does the introduction of stock index futures effectively reduce stock market volatility? Is the 'futures effect' immediate? Evidence from the Italian stock exchange using GARCH," Applied Financial Economics, Taylor & Francis Journals, vol. 12(3), pages 183-192.
    21. Corredor Pilar & Santamaria Rafael, 2002. "Does derivatives trading destabilize the underlying assets? Evidence from the Spanish stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 9(2), pages 107-110.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bohl, Martin T. & Diesteldorf, Jeanne & Siklos, Pierre L., 2015. "The effect of index futures trading on volatility: Three markets for Chinese stocks," China Economic Review, Elsevier, vol. 34(C), pages 207-224.
    2. Ekin Tokat & Hakkı Arda Tokat, 2010. "Shock and Volatility Transmission in the Futures and Spot Markets: Evidence from Turkish Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(4), pages 92-104, January.
    3. Sila Alan, Nazli & Karagozoglu, Ahmet K. & Korkmaz, Sibel, 2016. "Growing pains: The evolution of new stock index futures in emerging markets," Research in International Business and Finance, Elsevier, vol. 37(C), pages 1-16.
    4. C. P. Gupta & Sanjay Sehgal & Sahaj Wadhwa, 2018. "Agricultural Commodity Trading: Is it Destabilizing Spot Markets?," Vikalpa: The Journal for Decision Makers, , vol. 43(1), pages 47-57, March.
    5. Juan Benjamín Duarte Duarte & Juan Manuel Mascare?nas Pérez-Iñigo, 2014. "Comprobación de la eficiencia débil en los principales mercados financieros latinoamericanos," Estudios Gerenciales, Universidad Icesi, November.
    6. Crentsil Kofi Agyekum & Haifeng Huang & Jianshu Chen, 2017. "The impact of the Chinese cornstarch futures on spot market and corn futures market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1405580-140, January.
    7. Shailesh Rastogi & Chaitaly Athaley, 2019. "Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective," JRFM, MDPI, vol. 12(2), pages 1-15, June.
    8. Claudiu Tiberiu Albulescu & Daniel Goyeau, 2011. "Financial Volatility And Derivatives Products: A Bidirectional Relationship," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 2011, pages 57-69, july.
    9. Mustafa Okur & Emrah Cevik, 2013. "Testing Intraday Volatility Spillovers in Turkish Capital Markets: Evidence from Ise," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 26(3), pages 99-116, January.
    10. Kang, Sang Hoon & Cheong, Chongcheul & Yoon, Seong-Min, 2013. "Intraday volatility spillovers between spot and futures indices: Evidence from the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(8), pages 1795-1802.
    11. Jian, Zhihong & Wu, Shuai & Zhu, Zhican, 2018. "Asymmetric extreme risk spillovers between the Chinese stock market and index futures market: An MV-CAViaR based intraday CoVaR approach," Emerging Markets Review, Elsevier, vol. 37(C), pages 98-113.
    12. Jing Hao & Xiong Xiong & Feng He & Feng Ma, 2019. "Price Discovery in the Chinese Stock Index Futures Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(13), pages 2982-2996, October.
    13. Liu, Shengnan & Yang, Linshan & Gu, Rongbao, 2023. "Can the introduction of stock index futures stabilize the volatility of the stock market? Evidence from the Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 44-58.
    14. Selim Tuzunturk, 2009. "The relationship between volatility and volume on the Istanbul stock exchange," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 1(3), pages 289-304.
    15. He, Xiaoli & Wang, Hongwu & Du, Ziping, 2014. "The complexity and fractal structures of CSI300 before and after the introduction of CSI300IF," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 414(C), pages 76-85.
    16. Babajide Fowowe, 2014. "Paper oil and physical oil: has speculative pressure in oil futures increased volatility in spot oil prices?," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 38(3), pages 356-372, September.
    17. John Ryter & Xinkai Fu & Karan Bhuwalka & Richard Roth & Elsa Olivetti, 2022. "Assessing recycling, displacement, and environmental impacts using an economics‐informed material system model," Journal of Industrial Ecology, Yale University, vol. 26(3), pages 1010-1024, June.
    18. Aysegul Ates, 2016. "Relation between ISE 30 index and ISE 30 index futures markets: Evidence from recursive and rolling cointegration," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(1), pages 35-42, February.
    19. Lahmiri, Salim, 2017. "Cointegration and causal linkages in fertilizer markets across different regimes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 471(C), pages 181-189.
    20. Gong, Chen-Chen & Ji, Shen-Dan & Su, Li-Ling & Li, Sai-Ping & Ren, Fei, 2016. "The lead–lag relationship between stock index and stock index futures: A thermal optimal path method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 63-72.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Evangelos Drimbetas & Nikolaos Sariannidis & Nicos Porfiris, 2007. "The effect of derivatives trading on volatility of the underlying asset: evidence from the Greek stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 17(2), pages 139-148.
    2. Bohl, Martin T. & Diesteldorf, Jeanne & Siklos, Pierre L., 2015. "The effect of index futures trading on volatility: Three markets for Chinese stocks," China Economic Review, Elsevier, vol. 34(C), pages 207-224.
    3. George Filis & Christos Floros & Bruno Eeckels, 2011. "Option listing, returns and volatility: evidence from Greece," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1423-1435.
    4. Nikolaos Sariannidis & Evangelos Drimbetas, 2008. "Impact of international volatility and the introduction of Individual Stock Futures on the volatility of a small market," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 119-119.
    5. George Karathanassis & Vasilios Sogiakas, 2010. "Spill over effects of futures contracts initiation on the cash market: a regime shift approach," Review of Quantitative Finance and Accounting, Springer, vol. 34(1), pages 95-143, January.
    6. Arif Oduncu, 2011. "The Effects of Currency Futures Trading on Turkish Currency Market," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 5(1), pages 97-109.
    7. Committee, Nobel Prize, 2003. "Time-series Econometrics: Cointegration and Autoregressive Conditional Heteroskedasticity," Nobel Prize in Economics documents 2003-1, Nobel Prize Committee.
    8. Fleming, Jeff & Ostdiek, Barbara, 1999. "The impact of energy derivatives on the crude oil market," Energy Economics, Elsevier, vol. 21(2), pages 135-167, April.
    9. Syriopoulos, Theodore, 2006. "Risk and return implications from investing in emerging European stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(3), pages 283-299, July.
    10. Shaen Corbet & Cian Twomey, 2014. "Have Exchange Traded Funds Influenced Commodity Market Volatility?," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 323-335.
    11. Loc Dong Truong & Anh Thi Kim Nguyen & Dut Van Vo, 2021. "Index Future Trading and Spot Market Volatility in Frontier Markets: Evidence from Ho Chi Minh Stock Exchange," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 28(3), pages 353-366, September.
    12. Ata Assaf, 2006. "Canadian REITs and Stock Prices: Fractional Cointegration and Long Memory," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(03), pages 441-462.
    13. Nikolaos Sariannidis & Ioannis Koskosas & Nikos Kartalis & George Konteos, 2009. "Macroeconomic effects on D.J.S.I.-World Returns," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 2(2), pages 95-110, December.
    14. Lütkepohl,Helmut & Krätzig,Markus (ed.), 2004. "Applied Time Series Econometrics," Cambridge Books, Cambridge University Press, number 9780521547871.
    15. Karathanassis, George & Sogiakas, Vasilios, 2007. "Spill Over Effects of Futures Contracts Initiation on the Cash Market: A Comparative Analysis," MPRA Paper 5958, University Library of Munich, Germany.
    16. Franses,Philip Hans & Dijk,Dick van & Opschoor,Anne, 2014. "Time Series Models for Business and Economic Forecasting," Cambridge Books, Cambridge University Press, number 9780521520911.
    17. Berger, Jurij & Dalheimer, Bernhard & Brümmer, Bernhard, 2021. "Effects of variable EU import levies on corn price volatility," Food Policy, Elsevier, vol. 102(C).
    18. Pagan, Adrian, 1996. "The econometrics of financial markets," Journal of Empirical Finance, Elsevier, vol. 3(1), pages 15-102, May.
    19. John D. Levendis, 2018. "Time Series Econometrics," Springer Texts in Business and Economics, Springer, number 978-3-319-98282-3, August.
    20. Samih Antoine Azar & Angelic Salha, 2017. "The Bias in the Long Run Relation between the Prices of BRENT and West Texas Intermediate Crude Oils," International Journal of Energy Economics and Policy, Econjournals, vol. 7(1), pages 44-54.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:387:y:2008:i:12:p:2837-2845. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.