Volatility spillover between futures and spot markets: Case of developing countries

The aim of this study is to establish various econometric models to examine the volatility spillover between the futures markets and spot markets of Turkey and developing countries (Greece, India, South Africa, Poland, Brazil, China, South Korea, Malaysia, and Mexico). In this context, suitable models explaining the return volatility of the futures markets and spot markets established by using the spot and futures BIST 30 index traded on Borsa Istanbul for Turkey and the spot and futures indexes of the other developing countries for the 2012-2021 periods for each country separately. In addition, the direction of volatility relations in spot and futures markets has been tried to be determined. In the study, unit root tests were primarily carried out for spot and futures indices. Following this, the ARCH LM test, which is a time series analysis, and then the GARCH and EGARCH models were applied. In GARCH models, shocks affecting volatility did not have a permanent effect, and a shock that may occur in the index does not affect the index in the long term and disappears in the short term, In EGARCH models, on the other hand, it is seen that negative shocks affect more than positive shocks. After choosing the appropriate volatility models for each country, the relationship between the futures and spot market return volatility of the countries was done by causality test. When the results obtained from the analysis are examined, it has been determined that there is a bidirectional volatility relationship between the futures and spot markets for all countries included in the study. As a result, the return volatilities between futures and spot markets of Turkey and other developing countries in the sample have been empirically tested using daily data. This analysis was conducted to test the hypotheses related to futures markets and to assist in future regulations. The results indicate that futures markets can be an important tool to understand the relationship with spot markets. Therefore, it is recommended that similar analyses be conducted in future studies to better understand and improve the functioning of futures markets.