THE IMPACT OF DERIVATIVES ON THE VOLATILITY OF TURKISH STOCK MARKET

Authors : Aysegul CIMEN

Pages : 857-868

Doi:10.18092/ulikidince.430301

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Publication Date : 2018-07-04

Article Type : Research Paper

Abstract :The interaction among futures and spot markets has been one of the most important issues of the financial markets since the launch of stock index futures by Kansas City Board of Trade in 1982. The main characteristics of derivatives such as having lower transaction costs, higher leverage, higher liquidity and higher flexibility compared to spot markets make them attractive for investors. Besides, derivatives trading are crucial for financial system participants in order to diversify portfolio and minimise risks. The aim of this paper is to emphasize the importance of derivative securities by providing evidence from an emerging stock market, Turkey. In order to emphasize the need for derivatives in the Turkish market, the impact of introduction of index futures and index options trading on the underlying spot market volatility are empirically analysed. Conditional and unconditional volatility of Borsa Istanbul 30 Index is examined using GARCH model starting from its first trade day of January 2, 1997. 
Keywords : derivatives trading, conditional volatility