The Impact Of The Futures Market On
Spot Volatility: An Analysis In Turkish
Derivatives Markets
Author(s)
H. Baklaci & H. Tutek
Abstract
The derivatives market in Turkey has been in operation since February 2005.
This paper examines the impact of future trading on spot volatility by using
Istanbul Stock Exchange 30 (ISE 30) Index future contracts which represent the
most frequently traded future contracts in Turkish derivatives market.
The main objective of this paper is to investigate whether the existence of
future markets in Turkey has improved the rate at which new information is
impounded into spot prices and have any persistence effect.
The results gathered from the study indicate that even though it has been in
operation for a short period of time, the futures market in Turkey has
significantly increased the rate at which new information is transmitted into spot
prices and that it has reduced the persistence of information and volatility in
underlying spot market resulting in improved efficiency.
The results of this study have also some important implications for policy
makers discussed in the final section of this paper.
Keywords: derivatives market, volatility, spot market, GARCH.
1 Introduction
There has been an ongoing debate on the impact of derivative markets on spot
markets in terms of volatility, information flow, destabilizing spot markets and
their speculative effects. Majority of the studies exploring the above impacts
have been conducted on the developed markets, and particularly on U.S. (see for
example, Board et al. [2]; Edwards [12]). On the other hand, there are only a few
researches on emerging markets such as South Korea, India and Taiwan. (see for
example Ryoo and Smith [18]; and Nath [16]).
Keywords
derivatives market, volatility, spot market, GARCH.
Related Book
Other papers in this volume
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