Volatility modeling in stock markets: An application on the BIST banks index

Volatility is used as a measure of price fluctuations and reflects the degree of risk, so modelling and forecasting volatility effectively is critical for making strategic decisions in financial markets. Moreover, volatility plays a critical role in risk management, portfolio diversification and decision-making processes for investors, risk managers and financial institutions. In this context, this study aims to investigate the return volatility of the BIST Bank Index between February 2000 and July 2023 with symmetric and asymmetric models. As a result of the analyses, it is determined that the most appropriate volatility model for the BIST Bank Index in the relevant period is GARCH (1,1). Accordingly, it is revealed that approximately 14% of the shocks affecting the BIST Bank index are caused by shocks in the past period and 59% of the shocks in the period before the current period. According to the historical fluctuations of the conditional variance, 2001, 2008 and 2022 periods were determined as the highest volatility dates. As a result of the HL measure calculations, it can be said that the effect of a shock in the BIST Bank Index series can last more than 2 months. It can be said that the volatility clustering dates in the BIST Bank index occurred during the 2001 Turkiye economic crisis and 2008 Global financial crisis periods. The findings are important for investors, bank managers, analysts and market participants.