Volatility Spillover between the Foreign Exchange and the Stock Markets: Turkey, USA and Germany Cases

Transcription

1 IOSR Journl of Eonomis nd Finne (IOSR-JEF) e-issn: , p-issn: Volume 8, Issue 6 Ver. II (Nov.- De.7), PP -7 Voltility Spillover etween te Forein Exne nd te Stok Mrkets: Turkey, USA nd Germny Cses Atiye Beyn AKAY Interntionl Trde nd Loistis, Fulty of Applied Sienes, Akdeniz University, Turkey Astrt: Te doption of freely flotin exne rte reime nd te inrese in interntionl pitl movements ve inresed te intertion etween forein exne nd stok mrkets nd te ntionl finnil mrkets exposed to externl soks wit loliztion of finnil mrkets. In tis ontext, te study exmined te voltility spillover etween Turkis forein exne nd stok mrkets, Amerin nd Germn stok mrkets. MGARCH BEKK model ws used in te voltility spillover nlysis. Te empiril findins of tis study point out sinifint voltility spillovers etween te mrkets. Voltility reltions etween mrkets er sinifine for investors in terms of risk mnement nd portfolio diversifition deisions, nd for politns in terms of providin finnil stility nd te effeny of poles. Keywords: Forein exne mrket, MGARCH BEKK model, stok mrket, voltility spillover Dte of Sumission: --7 Dte of eptne: I. Introdution Te doption of freely flotin exne rte reime nd te inrese in interntionl pitl movements ve rout lon te voltility prolem on exne rtes. As exne rtes eme more sensitive towrds te soks in stok mrkets nd lol portfolio investments, urreny risks of ompnies s inresed nd stok mrkets strted ein ffeted y te exne rte movements nd te inresin voltility. Wit te loliztion of finnil mrkets, ntionl finnil mrkets ve eome vulnerle to externl soks, nd forein pitl movements ve eun to ve sinifint effets on ot te level nd te voltility of pries in stok nd forein exne mrkets. In Turkey, te finnil system ws lierlized in 989 wit te removl of te ontrols over forein pitl movements. Lierliztion of pitl movements wi is offerin trnstion opportunities for forein investors in stok mrkets nd te mrket domintion of i forein investors ve reted dependeny reltionsips etween finnil mrkets. Now, it n e seen tt sok in interntionl mrkets esily spreds to te ntionl mrket in sort time. Te doption of freely flotin exne rte reime fter nd te inrese in pitl movements sine 3 ve inresed te exne rte voltility in Turkey. Terefore, Turkis forein exne nd stok mrkets ve proressively met wit te notion of voltility spillover. Witin tis frmework, te im of tis study is to exmine te voltility spillover etween Turkis forein exne nd stok mrkets nd forein stok mrkets. Tis pper is ornized s follows. Setion reviews te literture, setion 3 disusses te dt nd metodoloy, setion 4 outlines te results of te nlysis nd setion 5 provides te onlusion. II. Literture Te nlysis of te voltility spillover proess in te literture is enerlly done in two wys. Te first is te o-intertion nlysis used to exmine te trnsmission of soks etween sset pries nd returns. Tis ppro fouses on lon term o-movement in different interntionl finnil mrkets. Te seond re of reser on voltility spillover studies te proess of voltility over time. In tis re, reserers use te ARCH (utoreressive onditionl eteroskedstty) model developed y Enle (98) to nlyze time vryin vrine (Hssn nd Mlik, 7) []. ARCH nd lso GARCH (enerlized ARCH) models re used to study voltility spillovers etween different mrkets nd different ssets in different ountries (Yn nd Doon, 4) []. Te reltionsip etween stok pries nd te exne rte ws first disussed y Frnk nd Youn in teir pper in 97, ut tey did not find sinifint intertion etween te two vriles. Te first studies exmined te reltionsip etween te two vriles wit reression nd orreltion [3]. Susequent studies ve exmined te simultneous reltionsips of two vriles. Wile Ajyi, Friedmn nd Mdin (998) [4] found usl reltions etween seurities mrkets nd forein exne mrkets in developed ountries, tey did not find ny stle reltionsip etween te two mrkets in developin ountries. Grner, Hun nd Yn () [5] nlyzed stok prie nd exne rte reltionsip wit unit DOI:.979/ Pe

2 Voltility Spillover etween te Forein Exne nd te Stok Mrkets: Turkey, USA nd.. root nd o-intertion teniques in nine Asin ountries. Tey found no reltionsip etween two vriles in Jpn nd Indonesi, ut found one wy reltionsip from exne rte to stok prie in Kore nd te reltionsip is vie vers for oter ountries. Nie nd Lee () [6] noted tt tere is no lon term dynmi reltionsip etween stok pries nd te exne rtes in te G-7 ountries, ut tt te sort term reltionsip tkes ple one dy lter, tt sok in one ountry sows te effet in oter ountries in te next dy. GARCH models ve een widely used in voltility spillover nlyses in reent yers. Kns () [7] indited tt te symmetri voltility spillover from equity returns to exne rtes in United Sttes, Enlnd, Jpn, Cnd nd Frne exept in Germny. Grmovs (3) [8] exmined te intertion etween exne rtes nd stok pries in Greee, te Cze Repuli nd Hunry, nd found tt te ne in stok pries d n impt on te exne rtes. In n noter study, in wi te GARCH model sed on te portfolio ppro, empsized te existene of voltility spillover ross ll ountries, ut lso mentioned tt different menisms mit our espeilly in risis periods for four Est Asin ountries (Cporle, Pittis nd Spnnolo, ) [9]. Yn nd Doon (4) [] nlyzed voltility spillovers usin te EGARCH model for weekly losin stok pries nd exne rtes for te G-7 ountries. Te findins of te study sow tt nes in stok pries ffet exne rte movements wile nes in exne rtes ve less effet on stok prie movements. Wile voltility spillovers s ourred from stok mrkets to forein exne mrkets for Frne, Itly, Jpn nd te United Sttes, no voltility spillover s een deteted in tese ountries from forein exne mrkets to stok mrket. Beer nd Heein (8) [] nlyzed te voltility spillover etween developed ountries (Ameri, Knd, Enlnd, Jpn) nd developin ountries (Hon Kon, Sinpore, Sout Kore, Pilippines) y usin te EGARCH model. Te findins point to te positive spred of mrket pries from te forein exne mrkets to stok mrkets in Cnd, Jpn nd Sout Kore. Altou tey ve not found stron evidene of voltility persistene in te stok nd forein exne mrkets for developed ountries, tey ve ieved opposite results for developin ountries. Morles (8) [] stted tt te voltility link etween stok returns nd te exne rtes is unidiretionl movin from stok pries towrds te exne rtes in one Europen nd six Ltin Amerin ountries. In noter study of six emerin ountries of Asi, sinifint voltility spillover from stok mrkets to forein exne mrkets s onfirmed for Indonesi, Mlysi, Kore, Tilnd nd Tiwn (Lee, Doon nd Cou, ) []. Empiril studies empsize te existene of onflitin results rerdin te dynmi reltionsip etween exne rtes nd stok pries. III. Dt And Metodoloy Tis pper exmines te voltility etween Turkis forein exne nd stok mrkets nd forein stok mrkets nd ddresses weter soks from ny mrket ffet te voltility of te ssets of oter mrkets. In oter words weter tere is voltility spillover etween mrkets is questioned nd if so, te persistene of voltility spillover is investited. DAX3 index for te Germn Stok Exne, S&P5 index for te Amerin Stok Exne nd NAT index for te Bors İstnul were seleted s representtive dt for stok mrkets. US Dollr/Turkis Lir (USD/TRY) nd Euro/Turkis Lir (EUR/TRY) mrkets dt were used for Turkis forein exne mrket. Dily losin vlues of stok indexes nd nominl exne rtes were used. All dt ws tered from dt strem. Te smple period is Mr, to Auust 3, 9, inludin 98 oservtions. Jonsen o-intertion test nd te MGARCH (multivrite GARCH) BEKK model were used to nlyze voltility spillover nd persistene of voltility. MGARCH BEKK model estimtes own nd ross mrket voltility spillovers nd lso te persistene of voltilities. Enle nd Kroner (995) [3], define BEKK (,,K) model s follows. H t C, C K ' ' ' C A k t t A nd k ' A G H G () k k k G k K k t, re nxn prmeter mtries, k C is trinulr mtrix, K, determines te enerlity of te proess. On te eqution ove, te seond term is defined s ARCH term, nd te tird term is defined s GARCH term. Te BEKK model for te GARCH (,) proess is expressed s te followin for K. H t C ' ' ' ' C A A G H G t t t () DOI:.979/ Pe

3 Voltility Spillover etween te Forein Exne nd te Stok Mrkets: Turkey, USA nd.. In te ivrite se, BEKK model eomes s te followin. ' ', t, t, t H C C H t, t, t, t If susripts nd GARCH terms re inored, te model will eome s te followin., t, t, t, t, t ss, t, t (4), t ( ), t, t, t, t, t ' t, t, t, t, t, t, t, t (6) In te BEKK (,,) model, te numer of prmeters to e estimted is Romouts, 6) [4]. (3) (5) (Buwens, Lurent nd In te model, ot te onditionl vrines ( ) nd te onditionl ovrines (, t, ) of te sset t returns re influenin e oter. voltility spillover etween sset i nd sset j. vrine, represents onstnt term for sset i, nd represents onstnt term of desries te effet of sok in te pst on onditionl desries te effet of sok in te pst on onditionl ovrine (voltility spillover). Te term refers te persistene of pst soks effets on onditionl vrine nd refers te persistene of pst soks effets on onditionl ovrine. IV. Results Asset returns t time t re lulted usin te dily losin vlues of stok indexes nd nominl exne rtes s te followin. p i, t p ln x i, t p (7) i, t Aumented Dikey Fuller (ADF), Pillips Perron (PP) nd Kwitkowski, Pillips, Smidt nd Sin (KPSS) unit root tests were pplied on te level series nd first differenes of loritmi series to determine teir sttionrity. Te results of ll tree unit root tests sow tt first differenes of loritmi series re sttionry. Tle. Unit root test results of first differenes of loritmi series DLNDAX3 DLNS&P5 DLNNAT DLNUSD/TRY DLNEUR/TRY ADF -48, , , , -49,8 PP -48,83-5,56-45, ,37-49,68 KPSS,5795,9,674,395,9384 Sinifine t te % level. Sinifine t te 5% level. Tle represents desriptive sttistis, Jrque Ber nd ARCH-LM test results. Wile ll series sow stndrd devitions lose to e oter, te iest stndrd devition elons to DLNNAT stok index. Te DLNNAT stok index s ot te lowest nd iest returns mon te series. Tese series rry exess kurtosis fetures wit lre sle from 3. All of te series sow very little devitions from zero skewness. Aordin to Jrque Ber test sttisti, te null ypotesis tt te series ext norml distriution is rejeted nd ARCH-LM test sttisti sows tt ll series ext ARCH effets. DOI:.979/ Pe

4 Voltility Spillover etween te Forein Exne nd te Stok Mrkets: Turkey, USA nd.. Tle. Desriptive Sttistis DLNDAX3 DLNS&P5 DLNNAT DLNUSD/TRY DLNEUR/TRY Men Stndrd Devition Minimum Mximum Skewness Kurtosis Jrque Ber TR (.) (.) Numers in prentesis re p vlues. (.) (.) (.) 5.63 (.) (.) (.) (.) 6.5 (.) Unit root tests indite tt first differenes of loritmi series re first order interted. Jonsen ointertion test ws used to determine weter loritmi series ve reltionsip in te lon term. Jonsen o-intertion test results sow tt ordin to tre sttistis tere is, nd ordin to mximum eienvlue sttistis tere re o-intertion reltionsips t 5% sinifine level. Tle 3. Jonsen Co-intertion test results Tre Test Hypoteses Eienvlue Tre sttisti.5 ritil vlue H : r, H : r H : r, H : r H : r, H : r 3 H : r 3, H : r 4,55 8,436 88,838, ,784 63,876,765 3,677 4,955,437 3,3435 5,87 H : r 4, H : r 5,85 4,59,5798 Mximum Eienvlue Test Hypoteses Eienvlue Mx-Eien sttisti.5 ritil vlue H : r, H : r H : r, H : r H : r, H : r 3 H : r 3, H : r 4,55 45, ,33, ,5 3,83,765 6,7456 5,83,437 9,953 9,3874 H : r 4, H : r 5,85 4,59,5798 Te null ypotesis is rejeted t te 5% sinifine level. Te results of te MGARCH BEKK model used in voltility spillover nlysis re iven in Tle 4. Te estimted prmeters from te MGARCH BEKK model re sinifint t % level nd ier tn ross mrket voltility prmeters. Te voltility of mrkets is ffeted more y its own pst soks rter tn soks risin from oter mrkets. USD/TRY mrket wit te mximum prmeter is te mrket wi is ffeted y its own pst voltility te most. All prmeters re sinifint t % level nd ier tn prmeters; ene, persistene of own mrket voltilities is stroner tn persistene of ross mrket voltilities. Bors İstnul s te iest own voltility persistene oeffent. Te results of te model sow tt tere is voltility spillover from stok mrket of Germny to stok mrkets of USA nd Turkey nd forein exne mrket of Turkey. In oter words, onditionl vrine of S&P5, NAT, USD/TRY nd EUR/TRY return series re ffeted from te soks of stok mrket of Germny. Te voltility risin from stok mrket of USA ffets stok mrkets of Germny nd Turkey nd forein exne mrket of Turkey. Te effets of voltility used y Bors İstnul n e oserved on DAX3, S&P5 nd EUR/TRY return series, weres te only mrket unffeted y Bors İstnul relted voltility is USD/TRY mrket. Te voltility risin from USD/TRY mrket ffets ll mrkets exept Bors İstnul. Te voltility of EUR/TRY urreny return ffets NAT index return nd USD/TRY urreny return voltilities; oter mrkets onsidered in tis work re not ein ffeted. DOI:.979/ Pe

5 Voltility Spillover etween te Forein Exne nd te Stok Mrkets: Turkey, USA nd.. Te voltility of Germn Stok Exne s permnent effets in ll mrkets, in oter words, te voltilities of ll mrkets used y te voltility of Germn Stok Exne will e permnent for t lest one dy. Only Bors İstnul nd USD/TRY mrket re permnently ffeted y te voltility of te Amerin Stok Exne. Te permnent effet of voltility risin from Bors İstnul n e seen on DAX3 index nd te EUR/TRY urreny pir. Te voltility in EUR/TRY mrket retes permnent effets on ot USD/TRY mrket nd Bors İstnul Tle 5. MGARCH BEKK (,) model results.7 (.7).543 (.).93 (.45) -.73 (.98).33 (.467).7 (.49). (.66) (.95) -.7 (.) -.8 (.).54 (.4).7 (.99).66 (.9).39 (.4).49 (.).738 (.44) -.88 (.96) (.37).5 (.75) -.9 (.3) -. (.73) -.63 (.54).389 (.3).346 (.88) DOI:.979/ Pe (.438).5 (.83) -,93 (.99).84 (.98). (.67).786 (.9).967 (.36).9738 (.8).986 (.3).933 (.7).9688 (.6) -.85 (.38).7 (.7).44 (.94) -.64 (.83).6 (.9).4 (.7) -.88 (.46).36 (.3) -.5 (.9) -.99 (.) -.57 (.7) Numers in prentesis re te stndrd devitions. Sinifine t te % level. Sinifine t te 5% level. Sinifine t te % level. i,,3,4,5 nd j,,3,4, 5 represent te DAX3, S&P5, te NAT index returns, te USD/TRY nd EUR/TRY nominl exne rtes returns respetively. V. Conlusion Finnil lierliztion nd interntionl intertion inresed te exne rte voltility in Turkey, lso strentened te reltionsip etween te forein exne nd stok mrkets nd exposed ntionl finnil mrkets to externl soks. In tis study, voltility spillover etween forein exne mrket of Turkey, stok mrkets of Turkey, Germny nd USA is exmined nd te findins of tis study point out sinifint voltility spillovers etween te mrkets. Voltility oriintin from Germn nd Amerin Stok

6 Voltility Spillover etween te Forein Exne nd te Stok Mrkets: Turkey, USA nd.. Mrkets s importnt voltility effets on forein exne nd stok mrkets of Turkey. All mrkets re influened y te voltility of Bors İstnul exept USD/TRY mrket nd tere is voltility spillover etween USD/TRY mrket nd te oter mrkets exept Bors İstnul. Te voltility of EUR/TRY mrket s effets on only ntionl finnil mrkets. Te voltility of mrkets is ffeted more y its own pst soks rter tn soks risin from oter mrkets. Persistene of own mrket voltilities is stroner tn persistene of ross mrket voltilities, in oter words, pst voltility soks in mrket ve reter effets on teir future voltilities tn te pst voltility soks in oter mrkets. Voltility reltions etween mrkets er sinifine for investors in terms of risk mnement nd portfolio diversifition deisions, nd for politns in terms of providin finnil stility nd te effeny of poles. Referenes []. S. A. Hssn, nd F. Mlik, Multivrite GARCH Modelin of Setor Voltility Trnsmission, Te Qurterly Review of Eonomis, 47, 7, []. S. Y. Yn, nd S. C. Doon, Prie nd Voltility Spillovers etween Stok Pries nd Exne Rtes: Empiril Evidene from te G-7 Countries, Interntionl Journl of Business nd Eonomis, 3(), 4, [3]. P. Frnk, nd A. Youn, Stok Prie Retion of Multintionl Firms to Exne Rte Relinments, Finnil Mnement, (3), 97, [4]. R. A. Ajyi, J. Friedmn, nd S. M. Medin, On te Reltionsip Between Stok Returns nd Exne Rtes: Tests of Grner Cuslity, Glol Finne Journl, 9(), 998, 4-5. [5]. C. W. J. Grner, B. N. Hun, nd C. W. Yn, A Bivrite Cuslity Between Stok Pries nd Exne Rtes: Evidene from Reent Asin Flu, Te Qurterly Review of Eonomis nd Finne, 4,, [6]. C. C. Nie, nd C. F. Lee, Dynmi Reltionsip Between Stok Pries nd Exne Rtes for G-7 Countries, Te Qurterly Review of Eonomis nd Finne, 4,, [7]. A. Kns, (), Voltility Spillovers Between Stok Returns nd Exne Rte Cnes: Interntionl Evidene, Journl of Business Finne & Aountin, 7(3),, [8]. C. A. Grmovs, Exne Rte Voltility nd Equity Mrkets: Evidene from Cze Repuli, Greee, nd Hunry, Estern Europen Eonomis, 4(5), 3, [9]. G. M. Cporle, N. Pittis, nd N. Spnnolo, Testin for Cuslity-In-Vrine: An Applition to te Est Asin Mrkets, Interntionl Journl of Finne nd Eonomis, 7,, []. F. Beer, nd F. Heein, An Assessment of te Stok Mrket nd Exne Rte Dynmis in Industrilized nd Emerin Mrkets, Interntionl Business & Eonomis Reser Journl, 7(8), 8, []. L. L. N. Morles, Voltility Spillovers Between Equity nd Curreny Mrkets: Evidene from Mjor Ltin Amerin Countries, Cudernos De Eonomi, 45, 8, []. C. Lee, S. Doon, nd P. Cou, Dynmi Correltion Between Stok Pries nd Exne Rtes, Applied Finnil Eonomis,,, [3]. R. F. Enle, nd K. F. Kroner, Multivrite Simultneous Generlized Ar, Eonometri Teory, (), 995, -5. [4]. L. Buwens, S. Lurent, nd J. V. K. Romouts, Multivrite GARCH Models: A Survey, Journl of Applied Eonometris,, 6, 7-9. Atiye Beyn AKAY "Voltility Spillover etween te Forein Exne nd te Stok Mrkets: Turkey, USA nd Germny Cses. IOSR Journl of Eonomis nd Finne (IOSR- JEF), vol. 8, no. 6, 7, pp. -7. DOI:.979/ Pe