Detecting risk transmission from futures to spot markets without data stationarity
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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Volume (Year): 10 (2009)
Issue (Month): 4 (August)
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