VOLATILITY SPILLOVERS BETWEEN BORSA ISTANBUL AND SELECTED COUNTRY STOCK MARKETS

Abstract

Examining the international sentiment of the national stock market and the return and volatility
spillovers in stock markets have been a hot topic in recent times. This study analyzes the return and
volatility interaction between Borsa Istanbul (BIST) and the DJI (US), S&P500 (US), N225
(Japan) and SSE (China) equity indices. In this study, the daily returns of Borsa Istanbul (BIST),
DJI, S&P500, N225 and SSE equity indices are taken into account and the interaction between
return and volatility is analyzed with EGARCH and TGARCH models for the period between
January 2012 and December 2022. In the study, Hafner & Herwatz variance causality test
reveals volatility spillovers and causality from DJI, S&P500 and N225 indices to Borsa
Istanbul at 1% significance level. According to the results obtained from EGARCH and TGARCH
models, BIST is affected by the lagged returns of S&P500 and N225 indices by 0.31 and 0.16
at 1% significance level, respectively, and by the lagged returns of SSE index by 0.04 at 5%
significance level. In this context, it is thought that the S&P500 index has a significant impact
on the returns of Borsa Istanbul, and therefore, it is a matter that investors should take into account
the lagged values of the N225 indices, especially the S&P500, when trading or investing in
Borsa Istanbul.