3.2 Modeling Volatility In this paper, we use the EGARCH model, which considers the asymmetric effects, to analyze the effect of futures trading on the volatility of ISE 30 index spot returns. An EGARCH model suggested by Nelson (1991) is modified with a dummy variable controlling the introduction of futures trading, S&P 500 volatility index (VIX), and dummy variables considering the day of the week effect. The model used for the analysis is as follows: 3.3 Data In this study, the Istanbul Stock Exchange 30 index, Istanbul Stock Exchange 30 index futures and S&P 500 volatility index (VIX) series are used. We used ISE-30 futures, because this is the most heavily traded index futures and the data is more comprehensive compared with that of ISE-100. 4. Results and Discussion The most striking aspect of the results is the change in the causality relation between the two markets after the break in September 2008. It is found that prior to break point, spot market seems to have a causal effect on futures market. However, after the break, dynamics change and futures market becomes a significant leading factor in spot market. Block-exogeneity test results show the strong unidirectional causal relationship from futures to spot market in the post break period. 5. Conclusions and Recommendations The vast majority of the empirical evidence on the introduction of futures trading, points to a stabilizing effect on the underlying spot market. This study extends this empirical approach to an emerging market, . Given the highly volatile characteristics of Turkish stock market among other emerging markets and the potential risk of volatility spillovers for the globally integrated financial markets, the investigation of the volatility behavior of stock returns before and after the introduction of futures is of particular interest for fund managers as well as policymakers. References Abhyankar, A., 1998, Linear and Nonlinear Granger causality: Evidence from the U.K. Stock Index Futures Market. 18, 519-540. Journal of Futures Markets Antonio, A., and P. Holmes, 1995, Futures Trading, Information and Spot Price Volatility: Evidence from the FTSE-100 Stock Index Futures Contract Using GARCH. 19, Journal of Banking and Finance 117-129. Please follow Harvard Referencing Style. Harvard Referencing Style: Web link. (Note: Total Number of Pages 20-25 maximum)
3.2 Modeling Volatility In this paper, we use the EGARCH model, which considers the asymmetric effects, to analyze the effect of futures trading on the volatility of ISE 30 index spot returns. An EGARCH model suggested by Nelson (1991) is modified with a dummy variable controlling the introduction of futures trading, S&P 500 volatility index (VIX), and dummy variables considering the day of the week effect. The model used for the analysis is as follows: 3.3 Data In this study, the Istanbul Stock Exchange 30 index, Istanbul Stock Exchange 30 index futures and S&P 500 volatility index (VIX) series are used. We used ISE-30 futures, because this is the most heavily traded index futures and the data is more comprehensive compared with that of ISE-100. 4. Results and Discussion The most striking aspect of the results is the change in the causality relation between the two markets after the break in September 2008. It is found that prior to break point, spot market seems to have a causal effect on futures market. However, after the break, dynamics change and futures market becomes a significant leading factor in spot market. Block-exogeneity test results show the strong unidirectional causal relationship from futures to spot market in the post break period. 5. Conclusions and Recommendations The vast majority of the empirical evidence on the introduction of futures trading, points to a stabilizing effect on the underlying spot market. This study extends this empirical approach to an emerging market, . Given the highly volatile characteristics of Turkish stock market among other emerging markets and the potential risk of volatility spillovers for the globally integrated financial markets, the investigation of the volatility behavior of stock returns before and after the introduction of futures is of particular interest for fund managers as well as policymakers. References Abhyankar, A., 1998, Linear and Nonlinear Granger causality: Evidence from the U.K. Stock Index Futures Market. Journal of Futures Markets 18, 519-540. Antonio, A., and P. Holmes, 1995, Futures Trading, Information and Spot Price Volatility: Evidence from the FTSE-100 Stock Index Futures Contract Using GARCH. Journal of Banking and Finance 19, 117-129. Please follow Harvard Referencing Style. Harvard Referencing Style: Web link. (Note: Total Number of Pages 20-25 maximum)
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