The Dynamic Structure of Financial Market Integration within the Organization of Turkic States: Evidence from TVP-VAR, TVGC, and WTC Methods

Abstract

Using three sophisticated time-varying econometric techniques—TVP-VAR, Time-Varying Granger Causality (TVGC), and Wavelet Coherence Analysis (WTC)—this study examines the dynamic structure of financial market integration among the Organization of Turkic States (OTS) member and observer states. The analysis reveals a generally low and inconsistent degree of financial integration across the OTS region using weekly stock market indexes from Turkey, Kazakhstan, and Hungary for the years 2011–2025. According to the TVP-VAR results, there is little shock transmission across markets, with Kazakhstan and Turkey continuing to be net receivers and Hungary continuously functioning as a net shock transmitter. During significant global shock events, as the Covid-19 pandemic and the Russia-Ukraine War, integration momentarily improves but significantly deteriorates during more stable times. The TVGC data also demonstrate how market leadership changes over time and how causal relationships change in response to shifting geopolitical and economic circumstances. Between 2016 and 2020, domestic dynamics dominated market behavior in Turkey; but, following 2022, exposure to external forces significantly increased. While medium- and long-term frequencies show sporadic bouts of stronger co-movement, the WTC analysis shows minimal coherence at short-term frequencies, indicating that market movements are mostly driven by country-specific dynamics. Overall, the results indicate that there is a definite need for more regional financial cooperation, shock transmission is limited and transient, and financial integration among OTS countries is still in its infancy. The findings provide important implications for policymakers in designing policies aimed at strengthening financial integration and deepening regional financial cooperation within the framework of the Organization of Turkic States.

Keywords

• Financial integration
• TVP-VAR
• Time-varying granger causality (TVGC)
• Wavelet coherence analysis (WTC)
• Organization of Turkic States (OTS)

References

1. Álamos, E. S., & Rodríguez, F. O. (2020). Latin American integrated market. Is there cointegration after the entry of Mexico?. Journal of Globalization, Competitiveness and Governability, 14(3), 34-47. https://doi.org/10.3232/GCG.2020.V14.N3.01
2. Albayrak, M. (2024). Türk Devletleri Teşkilatı’nda ekonomik iş birliği ve enerji politikalarının mali yansımaları. İçinde M. Ela & M. Albayrak (Eds.), Güncel Mali Araştırmalar (ss. 26–51). Özgür Yayınları. https://doi.org/10.58830/ozgur.pub577.c2372
3. Antonakakis, N., & Gabauer, D. (2017). Refined measures of dynamic connectedness based on TVP-VAR (MPRA Paper No. 78282). University Library of Munich.
4. Arora, V., & Shi, S. (2016). Energy consumption and economic growth in the United States. Applied Economics, 48(39), 3763-3773. https://doi.org/10.1080/00036846.2016.1145347
5. Baele, L., Ferrando, A., Hördahl, P., Krylova, E., & Monnet, C. (2004). Measuring financial integration in the euro area (ECB Occasional Paper No. 14). European Central Bank. https://hdl.handle.net/10419/154467
6. Beirne, J., & Gieck, J. (2014). Interdependence and contagion in global asset markets. Review of International Economics, 22(4), 639-659. https://doi.org/10.1111/roie.12116
7. Bekaert, G., & Harvey, C. R. (2003). Market integration and contagion. (NBER Working Paper 9510). National Bureau of Economic Research. http://www.nber.org/papers/w9510
8. Bekaert, G., Ehrmann, M., Fratzscher, M., & Mehl, A. (2014). The global crisis and equity market contagion. The Journal of Finance, 69(6), 2597-2649. https://doi.org/10.1111/jofi.12203

9. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427-431. https://doi.org/10.1080/01621459.1979.10482531
10. Didier, T., Hevia, C., Schmukler, S. L., & Didier, T. (2011). How resilient were emerging economies to the global crisis? (pp. 1-58). World Bank.
11. Diebold, F. X., & Yılmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal, 119(534), 158–171. https://doi.org/10.1111/j.1468-0297.2008.02208.x
12. Diebold, F. X., & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57-66. https://doi.org/10.1016/j.ijforecast.2011.02.006
13. Diebold, F. X., & Yılmaz, K. (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of Econometrics, 182(1), 119-134. https://doi.org/10.1016/j.jeconom.2014.04.012
14. Dungey, M., Fry, R., González-Hermosillo, B., & Martin, V. L. (2005). Empirical modelling of contagion: a review of methodologies. Quantitative Finance, 5(1), 9-24. https://doi.org/10.1080/14697680500142045
15. Dungey, M., & Gajurel, D. (2014). Equity market contagion during the global financial crisis: Evidence from the world's eight largest economies. Economic Systems, 38(2), 161-177. https://doi.org/10.1016/j.ecosys.2013.10.003
16. Forbes, K., & Rigobon, R. (2002). No contagion, only interdependence: Measuring stock market comovements. Journal of Finance, 57(5), 2223–2261. https://doi.org/10.1111/0022-1082.00494
17. Gajurel, D., & Dungey, M. (2023). Systematic contagion effects of the global finance crisis: evidence from the world’s largest advanced and emerging equity markets. Journal of Risk and Financial Management, 16(3), 182. https://doi.org/10.3390/jrfm16030182
18. Gilmore, C. G., Lucey, B. M., & McManus, G. M. (2008). The dynamics of Central European equity market comovements. The Quarterly Review of Economics and Finance, 48(3), 605-622. https://doi.org/10.1016/j.qref.2006.06.005
19. Horta, P., Mendes, C., & Vieira, I. (2010). Contagion effects of the subprime crisis in the European NYSE Euronext markets. Portuguese Economic Journal, 9(2), 115-140. https://doi.org/10.1007/s10258-010-0056-6
20. Hwang, E., Min, H. G., Kim, B. H., & Kim, H. (2013). Determinants of stock market comovements among US and emerging economies during the US financial crisis. Economic Modelling, 35, 338-348. https://doi.org/10.1016/j.econmod.2013.07.021
21. Kaminsky, G. L., Reinhart, C. M. & Vegh C.A. (2005). When It Rains, It Pours: Procyclical Capital. MIT Press.
22. Kawai, M. (2005). East Asian economic regionalism: progress and challenges. Journal of Asian Economics, 16(1), 29-55. https://doi.org/10.1016/j.asieco.2005.01.001
23. Lane, P. R., & Milesi-Ferretti, G. M. (2007). The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970–2004. Journal of International Economics, 73(2), 223-250. https://doi.org/10.1016/j.jinteco.2007.02.003
24. Longstaff, F. A. (2010). The subprime credit crisis and contagion in financial markets. Journal of Financial Economics, 97(3), 436-450. https://doi.org/10.1016/j.jfineco.2010.01.002
25. Mayorova, M. A., & Gerasimov, D. V. (2024). Case of the financial market connectivity in the EAEU. Journal of Regional and International Competitiveness, 5(4), 25-32.
26. Miranda-Agrippino, S., & Rey, H. (2020). US monetary policy and the global financial cycle. The Review of Economic Studies, 87(6), 2754-2776. https://doi.org/10.1093/restud/rdaa019
27. Mogilevskii, R. (2012). Trends and patterns in foreign trade of Central Asian countries. University of Central Asia, Institute of Public Policy and Administration. http://dx.doi.org/10.2139/ssrn.3023165
28. Nakajima, J. (2011). Time-varying parameter VAR model with stochastic volatility: An overview of methodology and empirical applications. https://www.imes.boj.or.jp/research/papers/english/me29-6.pdf (accesed on 13 September 2025).
29. Obstfeld, M. (2015). Trilemmas and tradeoffs: Living with financial globalization. BIS Working Paper 480. https://doi.org/10.1142/9789811238628_0002
30. Obstfeld, M., & Rogoff, K. (2009). Global imbalances and the financial crisis: products of common causes. CEPR Discussion DP7606.
31. Obstfeld, M., & Taylor, A. M. (2004). Global capital markets: integration, crisis, and growth. Cambridge university press.
32. Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346. https://doi.org/10.1093/biomet/75.2.335
33. Phillips, P. C., Shi, S., & Yu, J. (2015). Testing for multiple bubbles: Historical episodes of exuberance and collapse in the S&P 500. International Economic Review, 56(4), 1043-1078. https://doi.org/10.1111/iere.12132
34. Prasad, E., Rogoff, K., Wei, S. J., & Kose, M. A. (2003). Effects of financial globalization on developing countries: Some empirical evidence. In W. Tseng & D. Cowen (Eds.), India's and China's recent experience with reform and growth (pp. 201–228). International Monetary Fund.
35. Primiceri, G. E. (2005). Time varying structural vector autoregressions and monetary policy. The Review of Economic Studies, 72(3), 821-852. https://doi.org/10.1111/j.1467-937X.2005.00353.x
36. Rana, P. B. (2007). Economic integration and synchronization of business cycles in East Asia. Journal of Asian Economics, 18(5), 711-725. https://doi.org/10.1016/j.asieco.2007.07.002
37. Rey, H. (2015). Dilemma not trilemma: the global financial cycle and monetary policy independence. (21162). National Bureau of Economic Research. http://www.nber.org/papers/w21162
38. Sadorsky, P. (2012). Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies. Energy Economics, 34(1), 248-255. https://doi.org/10.1016/j.eneco.2011.03.006
39. Shepherd, B., & Wilson, J. S. (2007). Trade, infrastructure, and roadways in Europe and Central Asia: New empirical evidence. Journal of Economic Integration, 22(4), 723-747.
40. Shi, S., Hurn, S., & Phillips, P. C. (2020). Causal change detection in possibly integrated systems: Revisiting the money–income relationship. Journal of Financial Econometrics, 18(1), 158-180. https://doi.org/10.1093/jjfinec/nbz004
41. Shi, S., Phillips, P. C., & Hurn, S. (2018). Change detection and the causal impact of the yield curve. Journal of Time Series Analysis, 39(6), 966-987. https://doi.org/10.1111/jtsa.12427
42. Sun, X., Chen, X., Wang, J., & Li, J. (2020). Multi-scale interactions between economic policy uncertainty and oil prices in time-frequency domains. The North American Journal of Economics and Finance, 51, 100854. https://doi.org/10.1016/j.najef.2018.10.002
43. Swanson, N. R. (1998). Money and output viewed through a rolling window. Journal of monetary. Economics, 41(3), 455-474. https://doi.org/10.1016/S0304-3932(98)00005-1
44. Syriopoulos, T., Makram, B., & Boubaker, A. (2015). Stock market volatility spillovers and portfolio hedging: BRICS and the financial crisis. International Review of Financial Analysis, 39, 7-18. https://doi.org/10.1016/j.irfa.2015.01.015
45. TDT. (2025). Ekonomik işbirliği. https://www.turkicstates.org/tr/isbirligi-alanlari-detay/2-ekonomik-isbirligi (accessed on 29 November 2025).
46. Torrence, C., & Compo, G. P. (1998). A practical guide to wavelet analysis. Bulletin of the American Meteorological Society, 79(1), 61-78. https://doi.org/10.1175/1520-0477(1998)079%3C0061:APGTWA%3E2.0.CO;2
47. Tseng, N. F., Hung, Y. C., & Nakano, J. (2024). Granger causality tests based on reduced variable information. Journal of Time Series Analysis, 45(3), 444-462. https://doi.org/10.1111/jtsa.12720
48. Umar, Z., Adekoya, O. B., Gubareva, M., & Boubaker, S. (2024). Returns and volatility connectedness among the Eurozone equity markets. International Journal of Finance & Economics, 29(3), 3103-3122 https://doi.org/10.1002/ijfe.2816