Abstract
This study aims at empirically investigating the volatility and shock transmission patterns between the BIST 100 Index and relatively new BIST Sustainability Index, which is a platform for companies with high performance on the international sustainability criteria. Utilising 678 daily data from 05/11/2014, the day the XSURD index was launched, to 31/08/2017, the analysis employed a bivariate BEKK-GARCH (1,1) model. The findings indicate the existence of bi-directional volatility spillovers between two indices. Additionally, current volatility is affected by its own past volatility for each index. As for the shock transmission, the BIST Sustainability Index is responsive both to its own shocks and shocks arriving from the BIST 100 Index. However, the BIST 100 Index responds only to its own shocks without any significant shock transmission from the BIST Sustainability Index.
Highlights
The volatility of financial time series is a subject that is extensively investigated in studies on finance
The BEKK multivariate GARCH (MGARCH) specification of the conditional covariance matrix is employed in this study to analyze volatility spillover effects between the BIST 100 and XSURD indices
As there seems to be no prior study on the volatility structure and volatility transmission of the BIST Sustainability Index, this study is the first attempt in this regard
Summary
The volatility of financial time series is a subject that is extensively investigated in studies on finance. Since the development of the “Autoregressive Conditional Heteroskedasticity” (ARCH) model in 1982 by Engle, which was modified by Bollerslev [1] as generalized ARCH (GARCH), the volatility clustering has constituted the substantial part of the related studies. Appeared as univariate in approach, the line of studies is extended to multivariate GARCH (MGARCH) models, enabling the analysis of co-movement of financial returns resulting from the interaction of variables. This study aims at investigating the volatility transmission between the long-existing BIST 100 Index and relatively new BIST Sustainability Index in Istanbul Stock Exchange, Turkey. The BIST 100 Index, which has been in use since January 1986, is the fundamental index representing the Istanbul Stock Exchange. The BIST Sustainability Index, launched in November 2014, is a promising platform for companies with high performance on the international sustainability criteria
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