Interaction between the Asian and European capital markets and role of uncertainty

Integration of stock markets is very crucial for international foreign capital investments and market efficiency. Integration between stock markets also has a significant impact on cross-market returns and volatility spillovers. For these reasons knowing the integration and long-term relationship between stock markets is important for global investments, international portfolio management and risk assessment. Therefore having information about the degree of integration and long-term relationships between stock markets helps investors to protect themselves from the risks that may arise in the market. In the study, the degree of cointegration, return and volatility spillovers between Borsa Istanbul and Asia, Europe, two important US stock markets, uncertainty indices and VIX index covering the period of 2006-2021 were examined. The long-term relationship between Borsa Istanbul and selected Asian, European and US stock and uncertainty indices was investigated with the Autoregressive Distributed Lag Model (ARDL) model by using 192-monthly closing data for the period 2006-2021. The spillover of return and volatility between Borsa Istanbul and developed, developing Asian, European, US stock markets and VİX indice were investigated with GARCH-M, TGARCH and EGARCH models by using daily logarithmic return data of stock markets covering the period 2006-2021. Data used in the analysis were obtained from finance.yahoo.com, www.investing.com, www.policyuncertainty.com databases. In the study according to the ARDL long run form and bounds test results It has been found that Borsa Istanbul is co-integrated in the long run with the indices of AEX, DAX, DJI, GSPC, N225, N100, KS11, Niffy50, Karaiçi100, SZSE and WİG100. According to the GARCH models' results the effect of the lagged returns of most of the stock markets examined within the scope of the analysis on Borsa Istanbul was found positive and statistically significant. In addition, it was found that the volatility of Borsa Istanbul is asymmetrical and volatility and the persistence of volatility shocks were high in Borsa Istanbul. Besides It has been determined that bad news and negative shocks affect the volatility of Borsa İstanbul more than good news and positive shocks.