Abstract:
An increase in the return of an asset in the financial markets may cause the returns of the remaining assets to fluctuate over time because of the arbitrage conditions. This may also create a spillover or contagion between the volatilities of the assets in the financial markets. This study aimed to capture the spillover between financial markets in the Turkish economy and to investigate the effects of global markets on Turkish financial markets, since the spillover may arise from the global financial markets as well as the domestic ones. Employing BEKK parameterization of the multivariate GARCH model between 2006 and 2018, it found a strong mean spillover from global markets to domestic stock and bond markets, from stock and exchange markets to the bond market and from the dollar return to the stock market. For the volatility spillover, the results also supported strong spillover between each market pairs. These findings implied that the Turkish economy is well integrated into global markets and that a fluctuation in volatility in a global or domestic market immediately spreads to other domestic markets, regardless of borders.
