Volatility modeling and spillover of exchange rate and stock market

Nowadays, the most important factor for investors making investment decisions is the volatility in prices. Increases or decreases in the prices of assets in financial markets constitute the equivalent of volatility concept in that stock market. It is important for investors and institutions to be able to predict and modeling volatility in advance. Volatility may occur as a result of positive or negative news affecting the market, as well as influenced by political events and economic developments. The interaction of stock markets with each other as a result of globalization, that is, volatility spillover in a stock market positively or negatively affects the other stock market. Investigating the volatility spillover helps to predict the level of uncertainty and risk when making investment decisions. In this study, it is aimed to model volatility for exchange rates and BIST100 index return series and to reveal the volatility spillover between exchange rates and return of BIST100 using 2000-2019 weekly data. Therefore, the exchange rates and the volatility structure of the BIST100 index were firstly determined by ARCH-GARCH models and then the volatility spillover among them was determined by Multi-GARCH models. The findings revealed that there is a negative volatility spread from the USD and EURO exchange rates to the BIST100 index and a positive volatility spillover from the USD exchange rate to the EURO exchange rate.