Abstract:

In this study, the return and volatility spillover between Turkish stock market and developed European stock markets including United Kingdom, Germany and France is investigated by multivariate VAR-EGARCH model. The study is based on January 2, 2002 – September 30, 2013 period and daily data is used. The evidence is found that Turkish stock market is affected from developed European stock markets in terms of both return and volatility. Also, Germany market is the main contributer of return and volatility for the interactions between four markets. In terms of volatility spillover mechanism, the evidence is found that all markets’ volatilities excluding Turkey show an asymmetric response to shocks. According to conditional correlation matrix, the correlation between Turkish stock market and the other markets is the lowest, on the other hand the correlation between developed European markets is very high, thus it is concluded that the comovement of Turkish stock market and developed EU markets is significant but not high. Also, the evidence is found that all markets’ volatility is highest in 2007 US crisis period according to conditional variance graphs.

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