Analysis of volatility connectedness among BIST 100 index, VIX, exchange rates, gold and Nasdaq Crypto Index

With globalization, market interactions have increased, the risks faced by investors have diversified, and portfolio management processes have become more complex. Therefore, examining risks, volatility, and the degree of interconnectedness among markets in financial systems has gained great importance from both theoretical and practical perspectives. In this study, the volatility connectedness and spillovers between Turkey's leading capital market indicator, the BIST 100 index, and global market risk measures and alternative investment instruments—namely the VIX index, USD and EURO exchange rates, Ounce Gold, and the Nasdaq Crypto Index—were examined. Market volatilities were analyzed within the framework of systematic and unsystematic risks. The Time-Varying Parameter Vector Autoregressive (TVP-VAR) model was employed in the analyses. According to the findings of dynamic pairwise connectedness, the interconnectedness of the NCI with the BIST has increased in recent periods. This indicates that cryptocurrencies are gradually losing their characteristic of being an alternative and independent investment vehicle and have started to move more integratively with traditional financial markets. Particularly, although the NCI has been a volatility receiver throughout all periods, it has recently begun to emerge as a volatility transmitter to the BIST 100. Accordingly, this demonstrates that cryptocurrencies' interconnectedness with the BIST has increased in recent times, reflecting a tendency to move more integratively with traditional financial markets. It was determined that the period during which total connectedness among variables reached its highest level was the post-pandemic period. Following this period, declines in total connectedness began to be observed. In general, the observed decreases in connectedness levels among variables indicate that they have started to move more independently. In periods when volatility connectedness among variables remained stable, it was found that economic policies acted more steadily, the VIX index reflecting global risk perception remained at low levels, and volatility spillovers were limited during these times. In periods of heightened uncertainty, it was determined that with the increase in volatility in risky assets, investors exited from these assets and turned toward gold, considered a safe haven, leading to a transfer of volatility into the gold market.