Fundamental theories in finance and essays on testing their validity: Evidence from Borsa Istanbul

Many factors, such as changing market conditions and investor psychology, lead to deviations from the general assumptions of financial theories and the practical relevance of these theories is questioned. Determining the extent to which classical finance theories explain market behavior is important for investors, managers and finance researchers. The aim of this study is to test the validity of some theories, hypotheses and principles on which the science of finance is based on Borsa Istanbul with current data. For this purpose, the study was designed using various market and analysis methods. The element of risk should not be ignored when making a financial investment decision. In this context, futures markets are frequently used because of their ability to hedge against the risks that arise in spot markets. At the same time, investigating the interaction structure between these two markets is used both for evaluating theoretical expectations and for investment decisions. In this context, the study investigates cointegration and causality (lead-lag) relationships between spot and futures markets and evaluates the Transaction Cost Hypothesis, Leverage Hypothesis, Carry Cost Hypothesis, Efficient Market Hypothesis and Diversification Principle. At the same time, risk-return rationality, which is an underlying principle for many theories and models in finance, is tested on spot and futures markets. Finally, volatility spillovers between various domestic and international markets are calculated using the Dynamic Conditional Correlated Multivariate Stochastic Volatility Model (DCC-MSV) and the advantages of the International Portfolio Theory are investigated in this context. The main conclusion of the study is that the behavior of the BIST 30 Index is not supported by the classical theories and principles of finance. We also find that the index generally moves in tandem with other markets, has a high degree of dynamic conditional correlation, and exhibits volatility spillovers with exchange rates and various international equity markets, which may reduce diversification opportunities day by day.