Volatility spillovers between Borsa İstanbul sub-sectors in financial crisis times: The analysis based on direction, frequency dimension and shocks

The purpose of this study is to detect the changing volatility spillovers due to the crises between index returns of BIST subsector in the same sector groups, on the basis of direction, frequency and shocks that cause changes on correlation structure and also to determine if different types of financial crises effect volatility spillovers differently or not. In the thesis, the direction and frequency dimensions of volatility spillovers are identified and the shocks are specified by the help of three complementary methods. The analyses show that 2001 Financial Crisis and 2008 Global Crisis changed volatility spillovers between subsector index returns of industrial, services and financial sectors differently. Findings reveal that, conditional correlations between subsector index returns changed after the crises and the effects of 2008 Global Crisis are more than 2001 Financial Crisis. On the other hand, it is seen that, after 2001 Financial Crisis all of the subsector index returns were effected from political shocks and also especially subsector index returns of financial sector were effected from economical shocks. As for 2008 Global Crisis, it is determined that after the crisis, economical shocks had more effect on volatility spillovers between subsector index returns of industrial and financial sectors, social and political events had more effect on volatility spillovers between subsector index returns of industrial and services sectors. In the light of information gained from study, some advices were given to investors to be used in diversification decisions. Keywords: Financial crises, causality in variance, volatility spillover based on frequency domain, dynamic conditional correlation, Borsa Istanbul