Price Discovery Dynamics in Turkish Equity Index Futures Market


ATEŞ A., ER H.

Vietnam International Conference in Finance, Danang, Vietnam, 9 - 10 June 2016, vol.1, no.1, pp.36-37

  • Publication Type: Conference Paper / Summary Text
  • Volume: 1
  • City: Danang
  • Country: Vietnam
  • Page Numbers: pp.36-37
  • Akdeniz University Affiliated: Yes

Abstract

Turkey is one of the most dynamic emerging markets in the world and its futures market has expanded rapidly since the inception of futures contracts trading in 2005. Using high frequency data this study provides the first comprehensive examination of the informational role of index futures in price discovery process in Turkey for the period from February 4th, 2005 through September 30th, 2012. Data period covers extensive range of economic conditions including a strong economic growth and price stability in Turkish economy, global financial crisis as well as euro zone sovereign debt crisis. Furthermore, the data period contains the introduction period of futures market characterized by low trading volume as well as a mature period where trading activity increased considerably. Focusing on this data period allows us to examine whether price discovery function changes with changing market conditions. Our empirical results reveal new evidence that index futures markets became dominant in the price discovery process and new information is disseminated more rapidly in futures market since 2007. However, the degree of dominance of futures market in price discovery process varies over the sample period. Our results suggest that index futures market evolved and can be used as a price discovery vehicle but in times of market turmoil price discovery role of futures markets might be hampered. Our findings have implications for traders as well as market regulators.