Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange

26 Pages Posted: 13 Oct 2003

See all articles by Ali F. Darrat

Ali F. Darrat

Louisiana Tech University - College of Business

Omar M. Benkato

Ball State University - Department of Finance and Insurance

Abstract

This paper analyzes stock returns and volatility relations between the Istanbul Stock Exchange (ISE) and the global market as represented by stock markets in the US, the UK, Japan and Germany. Results from monthly data and multivariate cointegration tests suggest that the ISE became significantly integrated in the global market only in the period following market liberalization in late 1989. We also find evidence based on GARCH estimations that capital liberalization actually mitigated, rather than intensified, volatility in the ISE. Our results further suggest that the Asian crisis in mid-1997 and the consequent Russian economic meltdown in mid-1998 are partly responsible for the recent excessive volatility in the Turkish market. The results also identify the US and the UK markets as dominate sources of volatility spillovers for the ISE, even in the period following the Asian-Russian crises. Consequently, it appears that the two matured markets of the US and the UK shoulder significant responsibility for the stability and financial health of smaller emerging markets like the ISE.

Suggested Citation

Darrat, Ali F. and Benkato, Omar M., Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange. Available at SSRN: https://ssrn.com/abstract=437916

Ali F. Darrat (Contact Author)

Louisiana Tech University - College of Business ( email )

Department of Economics & Finance
P.O. Box 10318
Ruston, LA 71272
United States
318-257-3874 (Phone)
318-257-4253 (Fax)

Omar M. Benkato

Ball State University - Department of Finance and Insurance ( email )

Muncie, IN 47306-0340
United States
765-285-1560 (Phone)
765-285-5442 (Fax)

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