The contribution of the futures trading on the underlying stock in Turkish derivatives exchange to the efficiency of cash market: An application on ISE 30 index

The futures trading has been started on the underlying Istanbul Stock Exchange (ISE) 30 index in Turkish Derivatives Exchange (TURKDEX) which is found on the 4?th February 2005 in İzmir. In this study, the effect of futures trading on cash market efficiency is investigated by using Random Walk Model. The practice of Random Walk Model has been carried out with the help of correlogram test and unit root test. Daily closed prices of ISE 30 index is analyzed between two period as on 1?st January 2003 - 1?st February 2005 and on 4?th February 2005 - 30?th May 2007. The results of correlogram test and unit root test have been denoted that ISE 30 index is efficient in the weak form before and after futures trading in TURKDEX. In order to see whether there is a short term and a along term relationships between the futures and the cash market, the Engle-Granger co-integration test has been applied, error correction model has been found and the causality between the two markets is searched. Not only a long term but also a short term relationship between the futures index and the cash index is found out. While the futures index is expected to cause the cash index; Its observed that the cash index caused the futures index. As a result, it has been found out that the futures index doesn?t have a positive effect on the efficiency of the cash market.