Creation of financial uncertainty index and examination of volatility spread: An application on P5 countries and Turkey

After the 2008 Global Financial Crisis, it is seen that the interest in uncertainty and uncertainty shocks has increased in both theoretical and empirical literature. The main reason for this interest is that the devastating effect of the uncertainty shocks that emerged during and after the crisis began to be clearly seen in financial markets. Studies examining the causes and effects of uncertainty in developing countries are very limited in the scientific literature. The purpose of this study can be explained in two stages. These; to examine the effects of uncertainty and uncertainty shocks in developed and developing countries, and to examine the causal relationship between uncertainty and uncertainty shocks in developed and developing countries. In the study, P5 Countries were chosen to represent developed countries and Turkey was chosen to represent developing countries. The period examined in the study was selected as the 12-year period between 2010-2021 in order to examine the effects of uncertainty and uncertainty shocks in the medium and long term after the 2008 Global Financial Crisis. A financial uncertainty index was created for the selected countries and the dates when the levels of the indices increased were examined. In the countries examined, it has been observed that especially the China-USA trade wars, Ukraine-Russia tension, BREXIT, COVID-19 pandemic, terrorist incidents, social protests and political tensions are the events that cause the index to rise. The causality relationship between the financial uncertainty indices prepared for P5 countries and the financial uncertainty index prepared for Turkey was tested with the causality test in variance developed by Hafner and Harvardz (2006). It has been determined that there is a one-way causality relationship from the USA, France and Russia to Turkey at the 1% significance level. While a causal relationship from Turkey to other selected countries could not be determined, a causality relationship in both directions could not be determined between England and China and Turkey.