Volatility Spillovers between Spot and Futures Markets and the Analysis of Their Persistence

Abstract

Futures markets and spot markets of the underlying assets are closely interrelated. These relationships are observed on the basis of prices and returns, or in terms of risk transmissions. One of the important risk sources for investors is volatility spillovers between markets. Determining volatility spillovers between markets plays an important role in estimating the future volatility of the markets. Volatility spillovers, which occur due to many different factors such as information transfer between markets, volatility shocks, sudden price changes in the markets, and increased integration, can occur mutually or from one market to another. On the other hand, these spillovers may be temporary or permanent. In this context, the aim of the study is to test the existence of volatility spillovers between spot and futures stock markets in 27 developed and developing countries and to determine the direction and persistence structure of the spillovers for the period from January 4, 2000, to March 25, 2025. In line with the determined purpose, the Hafner and Herwartz (2006) causality-in-variance test and the causality-in-variance test extended with Fourier functions were applied in the study. The results show that there are volatility spillovers between spot and futures markets in almost all of the countries considered, and these spillovers are bidirectional for 21 countries. Also, it was determined that most of the volatility spillovers are persistent in nature.

Keywords

• Stock Markets
• Causality in Variance
• Persistency

Spot ve Future Piyasalar Arasındaki Oynaklık Yayılımları ve Yayılımların Kalıcılığının Analizi

Abstract

Future piyasalar ve dayanak varlığa ait spot piyasalar birbiriyle yakından ilişkilidir. Bu ilişkiler fiyatlar ve getiriler bazında veya risk geçişleri olarak gözlemlenmektedir. Yatırımcılar için önemli risk kaynaklarından biri piyasalar arasındaki oynaklık yayılımlarıdır. Piyasalar arasındaki oynaklık yayılımlarının belirlenmesi, piyasaların geleceğe ilişkin oynaklık tahmininde önemli bir rol oynamaktadır. Piyasalar arasındaki bilgi aktarımı, piyasalarda meydana gelen oynaklık şokları ve ani fiyat değişimleri, artan entegrasyon gibi pek çok farklı faktöre bağlı olarak ortaya çıkan oynaklık yayılımları karşılıklı veya bir piyasadan diğerine doğru gerçekleşebilmektedir. Öte yandan, bu yayılımlar geçici olabilmekte veya kalıcılık sergileyebilmektedir. Bu bağlamda çalışmanın amacı, 4 Ocak 2000-25 Mart 2025 tarihleri arasında 27 gelişmiş ve gelişmekte olan ülkede spot ve future hisse senedi piyasaları arasındaki oynaklık yayılımlarının varlığının sınanması, yayılımların yönünün ve kalıcılık yapısının belirlenmesidir. Belirlenen amaç doğrultusunda çalışmada Hafner ve Herwartz (2006) varyansta nedensellik testi ve Li ve Enders (2018) Fourier fonksiyonları ile genişletilmiş varyansta nedensellik testi uygulanmıştır. Sonuçlar, ele alınan ülkelerin hemen hepsinde spot ve future piyasalar arasında oynaklık yayılımları bulunduğunu ve 21 ülkede bu yayılımların karşılıklı olduğunu ortaya koymuştur. Ayrıca oynaklık yayılımlarının çoğunun kalıcı nitelikte olduğu tespit edilmiştir.

Keywords

• Hisse Senedi Piyasaları
• Varyansta Nedensellik
• Kalıcılık

References

1. Antonakakis, N., Floros, C. and Kizys, R. (2016). Dynamic spillover effects in futures markets: UK and US evidence. International Review of Financial Analysis, 48, 406-418. https://doi.org/10.1016/j.irfa.2015.03.008
2. Antoniou, A., Pescetto, G. and Violaris, A. (2003). Modelling international price relationships and Interdependencies between the stock index and stock index futures markets of three EU countries: A multivariate analysis. Journal of Business Finance & Accounting, 30(5-6), 645-667. https://doi.org/10.1111/1468-5957.05409
3. Apostolakis, G.N. (2024). Bitcoin price volatility transmission between spot and futures markets. International Review of Financial Analysis, 94, 103251. https://doi.org/10.1016/j.irfa.2024.103251
4. Apostolakis, G.N., Floros, C., Gkillas, K. and Wohar, M. (2024). Volatility spillovers across the spot and futures oil markets after news announcements. The North American Journal of Economics and Finance, 69, 102002. https://doi.org/10.1016/j.najef.2023.102002
5. Chan, K., Chan, K.C. and Karolyi, G.A. (1991). Intraday volatility in the stock index and stock index futures markets. Review of Financial Studies, 4(4), 657-684. https://doi.org/10.1093/rfs/4.4.657
6. Chen, Z., Li, S., Cai, M., Zhong, L. and Ren, F. (2021). Cross-region risk spillover between the stock and stock index futures markets under exogenous shocks. The North American Journal of Economics and Finance, 58, 101451. https://doi.org/10.1016/j.najef.2021.101451
7. Diebold, F.X. and Yilmaz, 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
8. Fan, X. and Du, D. (2017). The spillover effect between CSI 500 index futures market and the spot market. China Finance Review International, 7(2), 249-272. https://doi.org/10.1108/cfri-08-2016-0103

9. Funke, N. and Goldstein, A. (1996). What is happening with financial market volatility and why? Intereconomics, 31(5), 215-220. https://doi.org/10.1007/BF02927152
10. Gannon, G. (2005). Simultaneous volatility transmissions and spillover effects: U.S. and Hong Kong stock and futures markets. International Review of Financial Analysis, 14(3), 326-336. https://doi.org/10.1016/j.irfa.2004.10.005
11. Gkillas, K., Konstantatos, C., Floros, C. and Tsagkanos, A. (2021). Realized volatility spillovers between US spot and futures during ECB news: Evidence from the European sovereign debt crisis. International Review of Financial Analysis, 74, 101706. https://doi.org/10.1016/j.irfa.2021.101706
12. Gürbüz, S. and Şahbaz, A. (2022). Investigating the volatility spillover effect between derivative markets and spot markets via the wavelets: The case of Borsa Istanbul. Borsa Istanbul Review, 22(2), 321-331. https://doi.org/10.1016/j.bir.2021.05.006
13. Hafner, C.M. and Herwartz, H. (2006). A Lagrange multiplier test for causality in variance. Economics Letters, 93(1), 137-141. https://doi.org/10.1016/j.econlet.2006.04.008
14. Hasbrouck, J. (1995). One security, many markets: Determining the contributions to price discovery. The Journal of Finance, 50(4), 1175-1199. https://doi.org/10.1111/j.1540-6261.1995.tb04054.x
15. Hou, Y.G. and Li, S. (2020). Volatility and skewness spillover between stock index and stock index futures markets during a crash period: New evidence from China. International Review of Economics & Finance, 66, 166-188. https://doi.org/10.1016/j.iref.2019.11.003
16. Kang, S.H., Cheong, C. and Yoon, S. (2013). Intraday volatility spillovers between spot and futures indices: Evidence from the Korean stock market. Physica A: Statistical Mechanics and its Applications, 392(8), 1795-1802. https://doi.org/10.1016/j.physa.2013.01.017
17. Kang, S.H. and Lee, J.W. (2019). The network connectedness of volatility spillovers across global futures markets. Physica A: Statistical Mechanics and its Applications, 526, 120756. https://doi.org/10.1016/j.physa.2019.03.121
18. Kara, E., Anbar, A. and Arabacı, Ö. (2022). Volatility spillover between BIST30 futures and spot markets: A DCC-Garch analyses. Yönetim Bilimleri Dergisi, 20(43), 1-27. https://doi.org/10.35408/comuybd.827041
19. Kılıç, E. (2022). Vadeli ve spot piyasalar arasındaki getiri ve volatilite etkileşimi: Borsa İstanbul üzerine bir uygulama. Dicle Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 12(23), 109-122. https://doi.org/10.53092/duiibfd.1030052
20. Koutmos, G. and Tucker, M. (1996). Temporal relationships and dynamic interactions between spot and futures stock markets. Journal of Futures Markets, 16(1), 55-69. https://doi.org/10.1002/(SICI)1096-9934(199602)16:1<55::AID-FUT3>3.0.CO;2-G
21. Li, J. and Enders, W. (2018). Flexible Fourier form for volatility breaks. Studies in Nonlinear Dynamics & Econometrics, 22(1), 20160039. https://doi.org/10.1515/snde-2016-0039
22. Magkonis, G. and Tsouknidis, D.A. (2017). Dynamic spillover effects across petroleum spot and futures volatilities, trading volume and open interest. International Review of Financial Analysis, 52, 104-118. https://doi.org/10.1016/j.irfa.2017.05.005
23. Mallikarjunappa, T. and Afsal, E.M. (2010). Price discovery process and volatility spillover in spot and futures markets: Evidences of individual Stocks. Vikalpa: The Journal for Decision Makers, 35(2), 49-62. https://doi.org/10.1177/0256090920100205
24. Mcaleer, M. and da Veiga, B. (2008). Forecasting value‐at‐risk with a parsimonious portfolio spillover GARCH (PS‐GARCH) model. Journal of Forecasting, 27(1), 1-19. https://doi.org/10.1002/for.1049
25. Min, J.H. and Najand, M. (1999). A further investigation of the lead-lag relationship between the spot market and stock index futures: Early evidence from Korea. Journal of Futures Markets, 19(2), 217-232. https://doi.org/10.1002/(sici)1096-9934(199904)19:2<217::aid-fut5>3.0.co;2-8
26. Pati, P.C. and Rajib, P. (2011). Intraday return dynamics and volatility spillovers between NSE S&P CNX nifty stock index and stock index futures. Applied Economics Letters, 18(6), 567-574. https://doi.org/10.1080/13504851003742442
27. RL, M. and Mishra, A.K. (2020). Price discovery and volatility spillover: An empirical evidence from spot and futures agricultural commodity markets in India. Journal of Agribusiness in Developing and Emerging Economies, 10(4), 447-473. https://doi.org/10.1108/jadee-10-2019-0175
28. Saini, C. and Sharma, I. (2024). Price discovery and volatility connectedness in Indian gold market: A study of ETFs, spot and futures. International Journal of Financial Markets and Derivatives, 10(1), 1-20. https://doi.org/10.1504/ijfmd.2024.10065001
29. Sakthivel, P., Chittedi, K.R. and Sakyi, D. (2017). Price discovery and volatility transmission in currency spot and futures markets in India: An empirical analysis. Global Business Review, 20(4), 931-945. https://doi.org/10.1177/0972150917721834
30. Sehgal, S., Sobti, N. and Diesting, F. (2021). Who leads in intraday gold price discovery and volatility connectedness: Spot, futures, or exchange‐traded fund? Journal of Futures Markets, 41(7), 1092-1123. https://doi.org/10.1002/fut.22208
31. Siddiqui, S. and Roy, P. (2020). Asymmetric information linkages across select futures and spot indices. Journal of Advances in Management Research, 17(3), 397-419. https://doi.org/10.1108/jamr-10-2019-0197
32. Sim, A. and Zurbreugg, R. (1999). Intertemporal volatility and price interactions between Australian and Japanese spot and futures stock index markets. Journal of Futures Markets, 19(5), 523-540. https://doi.org/10.1002/(SICI)1096-9934(199908)19:5<523::AID-FUT2>3.0.CO;2-6
33. Sundararajan, S. and Balasubramanian, S.A. (2025). Intraday price discovery and volatility transmission between the dual-listed stock index futures and spot markets – new evidence from India. International Journal of Emerging Markets, 20(5), 1888-1907. https://doi.org/10.1108/ijoem-07-2022-1097
34. Tokat, E. and Tokat, H.A. (2010). Shock and volatility transmission in the futures and spot markets: Evidence from Turkish markets. Emerging Markets Finance and Trade, 46(4), 92-104. https://doi.org/10.2753/ree1540-496x460406
35. Truong, L.D., Nguyen, A.T. and Vo, D.V. (2021). Index future trading and spot market volatility in frontier markets: Evidence from Ho Chi Minh stock exchange. Asia-Pacific Financial Markets, 28, 353-366. https://doi.org/10.1007/s10690-020-09325-1
36. Tse, Y. (1999). Price discovery and volatility spillovers in the DJIA index and futures markets. Journal of Futures Markets, 19(8), 911-930. https://doi.org/10.1002/(SICI)1096-9934(199912)19:8<911::AID-FUT4>3.0.CO;2-Q
37. Williams, J.C. (1986). The economic function of futures markets. Cambridge: Cambridge University Press.
38. Wu, C., Li, J. and Zhang, W. (2005). Intradaily periodicity and volatility spillovers between international stock index futures markets. Journal of Futures Markets, 25(6), 553-585. https://doi.org/10.1002/fut.20155
39. Yağcılar, G.G. (2022). Türkiye’de spot ve vadeli işlem piyasaları arasında bilgi etkinliği ve etkileşim: Öncül-ardıl ilişkiler ve volatilite iletimi. Uluslararası Yönetim İktisat ve İşletme Dergisi, 18(2), 470-491. https://doi.org/10.17130/ijmeb.969177
40. Yang, J., Yang, Z. and Zhou, Y. (2012). Intraday price discovery and volatility transmission in stock index and stock index futures markets: Evidence from China. Journal of Futures Markets, 32(2), 99-121. https://doi.org/10.1002/fut.20514
41. Yarovaya, L., Brzeszczyński, J. and Lau, C.K. (2016). Intra- and inter-regional return and volatility spillovers across emerging and developed markets: Evidence from stock indices and stock index futures. International Review of Financial Analysis, 43, 96-114. https://doi.org/10.1016/j.irfa.2015.09.004
42. Zhang, Q. and Jaffry, S. (2015). Can Chinese stock index future and spot markets influence each other’s Volatility? Evidence from both conditional volatility and realized Volatility. The Journal of Alternative Investments, 18(1), 37-47. https://doi.org/10.3905/jai.2015.18.1.037
43. Zhong, M., Darrat, A.F. and Otero, R. (2004). Price discovery and volatility spillovers in index futures markets: Some evidence from Mexico. Journal of Banking & Finance, 28, 3037-3054. https://doi.org/10.1016/j.jbankfin.2004.05.001