Volatility spillover between the stock market and the foreign exchange market in Turkey

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Tezin Türü: Yüksek Lisans

Tezin Yürütüldüğü Kurum: Dokuz Eylül Üniversitesi, Sosyal Bilimler Enstitüsü, İşletme Ana Bilim Dalı, Türkiye

Tezin Onay Tarihi: 2008

Tezin Dili: İngilizce

Öğrenci: OYA ÖZENGİN

Danışman: SAADET KASMAN

Açık Arşiv Koleksiyonu: AVESİS Açık Erişim Koleksiyonu

Özet:

The recent increase in financial market liberalizations has accelerated the foreign capital flow to stock markets. As a consequence, the relationship between the exchange rate and the stock price index is being taken more seriously. In this study, the volatility spillover effect between Turkish stock market and foreign exchange market is analyzed. The goal is to determine if volatility shocks in one market influence the volatility of returns in the other market. The ARCH models such as GARCH (1,1) and EGARCH (1,1) is used for modeling spillovers between stock returns and exchange rate returns. It is found that the volatility in both markets is highly persistent and predictable on the basis of past innovations. The impact of these innovations is asymmetric. It is also found evidence of unidirectional volatility spillover from stock market to foreign exchange market. This result suggests that there is an information flow (transmission) from stock market to foreign exchange market and investors can predict the behavior of one market by using the information of the other. Finally, the implication of these results is particularly important for portfolio managers and domestic and international investors for hedging and diversifying their portfolios since they can obtain more insights in the management of their portfolio affected by these two variables.Key Words: 1. Volatility, 2. Spillover Effect,3. Foreign Exchange Market, 4. Stock Exchange Market.