Return and Volatility Spillovers Between Turkish and World Equity Markets: Spillover Index Approach

Abstract

The purpose of this study is to examine the volatility and return spillover effect in the stock indices of 19 developed and developing market economies during the period between January 2000 and June 2019, and it is also aimed to examine the findings specifically for Turkish stock exchange market (Borsa Istanbul). In the study, spillover index method of Diebold and Yılmaz (2009) is used and as a result, it is found that the USA and the UK have the highest spillover effect among other countries. On the other hand, the net effect spillover from Turkey to other and from other countries to Turkey are not at their high levels compared to others. In Turkey, return on equity markets and price volatility stems mainly from its internal shocks. Finally, it has been concluded that total spillover has increased in the crucial global events such as Mortgage crisis, Lehman Brothers bankruptcy, and Brexit referendum where financial stress is at its highest level.

Keywords

• equity market
• financial contagion
• volatility spillover
• variance decomposition
• financial crisis