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Causality between Spot and Future Markets of the Borsa Istanbul Index and the Dow Jones Industrial Average

Author

Listed:
  • Letife Özdemir
  • Ercan Özen
  • Simon Grima
  • Yannis Thalassinos

Abstract

Purpose: Futures markets are mainly used as a tool for price discovery and for risk management on the spot markets and to enable diversification for international portfolio investments. With this study we aim (1) to investigate and confirm the causality relationship between futures markets and the spot markets and (2) to examine and confirm the causality relationship between futures markets and the spot markets in different countries. Design/Methodology/Approach: We used the BIST30 spot index and BIST30 futures contract representing the Borsa Istanbul market and the Dow-Jones 30 index and Dow-Jones 30 futures contract, which are the most used indices representing the US markets. Daily closing price data for the period between 2nd January, 2009 and 18th June, 2018 were analyzed using correlation, unit root test, causality test and regression equations. Findings: The results of the study confirms that the futures markets continue their price discovery role for both the spot markets and futures markets and are influential on other futures and spot markets at international level. Practical Implications/Originality/Value: These findings are important for investors in Turkey and emerging market economies since they confirm and cooroborate previous findings by other authors. Moreover, these findings will help investors take informed decisions by providing them with more knowledge in the object of this research.

Suggested Citation

  • Letife Özdemir & Ercan Özen & Simon Grima & Yannis Thalassinos, 2019. "Causality between Spot and Future Markets of the Borsa Istanbul Index and the Dow Jones Industrial Average," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 9(3-4), pages 115-131.
    • Handle: RePEc:ers:ijfirm:v:9:y:2019:i:3-4:p:115-131
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    References listed on IDEAS

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    More about this item

    Keywords

    Causality; Dow Jones 30; Borsa Istanbul; BIST30; Emerging Market Economies.;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G1 - Financial Economics - - General Financial Markets
    • G1 - Financial Economics - - General Financial Markets
    • N2 - Economic History - - Financial Markets and Institutions

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