Analysis of volatility linkage between Borsa İstanbul and European stock markets with dynamic conditional correlation models based on financial crises

The purpose of this study is to determine if 2008 Global Crisis, Greek Debt Crisis and European Debt Crisis changed the volatility linkages between Borsa Istanbul and European stock markets or not, to test the asymmetric effects in volatility linkages and to detect the specific events that cause changes on volatility linkages. In line with this purpose, volatility linkages between Borsa Istanbul and European stock markets are analyzed with dynamic conditional correlation models, in terms of periods that are determined on the basis of crises. Analysis showed that there is no asymmetric effects in volatility linkages. However, it is determined that crises changed the volatility linkages between Borsa Istanbul and European stock markets. Findings reveal that, conditional correlations generally increased for short run and exhibit dynamic structure after the crises. Also, it is identified that crises changed short and long term persistency of shocks on volatility linkages between stock exchanges. It is determined that international developments caused changes in conditional correlations alongside of country-specific events. On the basis of information gained from analyses some advices were given to investors that can be used in international portfolio diversification decisions. Keywords: Financial crises, Borsa Istanbul, European stock exchanges, volatlity linkage, dynamic conditional correlation models.