Volatility Spillover between Uncertainty in Financial and Commodity Markets and Turkish Stock Market

Article Information
Journal: Business and Economics Research Journal
Title of Article: Volatility Spillover between Uncertainty in Financial and Commodity Markets and Turkish Stock Market
Author(s): Baris Kocaarslan
Volume: 11
Number: 1
Year: 2020
Page: 119-129
ISSN: 2619-9491
DOI Number: 10.20409/berj.2020.239
Abstract
The aim of this study is to investigate risk spillovers between uncertainty about financial and commodity markets and Turkish stock market by using a causality-in-variance test. To this end, we use implied volatility indexes (the implied volatility of the gold, oil, stock, and currency prices from options markets) and Morgan Stanley Capital International (MSCI) Turkish stock market index. The volatility model estimates demonstrate that implied volatilities and Turkish stock market index are strongly influenced by long-run volatility. The causality-in-variance test results provide evidence of a significant one-way volatility spillover effect from uncertainty in financial and commodity markets to the Turkish stock market. The results suggest that Turkish stock market returns are highly sensitive to uncertainty shocks in global markets, and hence this high-sensitivity reduces the attractiveness of investments in the Turkish market. Our findings present important implications for the implementation of sound economic policies and for the formation of optimal portfolios.

Keywords: Implied Volatility, Uncertainty, Causality-in-Variance, Volatility Spillover, Turkish Stock Market

JEL Classification: C58, G15

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