THE IMPACT OF THE LEVERAGE PROVIDED BY THE FUTURES ON THE PERFORMANCE OF TECHNICAL INDICATORS: EVIDENCE FROM TURKEY

Yıl 2012, Cilt: 4 Sayı: 2, 91 - 101, 01.12.2012

Hakan Er Adnan Hushmat

Öz

Although in developed countries the futures markets have been in existence since
mid-nineteenth century, they are relatively new in the developing countries. In the
late twentieth and early twenty first century, many new futures exchanges were
established in developing countries and in the majority of these newly established
exchanges substantial growth in futures trading have been observed within a small
period of time. This fast growth in the futures trading volume was mainly due to
the tremendous leverage the futures provides to speculators. Thanks to futures
margining system, by committing only a small fraction of the money needed to
maintain a position on the underlying security in the spot market, a speculator can
attain a much higher return potential by buying or selling a futures contract. This
paper studies this effect by employing daily return data on 19 selected stocks
listed continuously in IMKB-30 (Istanbul Stock Exchange 30, Turkey) from
January 2005 to December 2010. Popular technical indicators are used to generate
buy and sell signals in both the spot market (Istanbul Stock Exchange) and the
futures market (VOB, a fast growing derivatives exchange located in İzmir,
Turkey). The profit/loss resulting from trading strategies are then calculated and
compared. The results of the study show that, although the amount invested in
both markets is the same, the profit generated from the strategies applied on
futures is significantly higher than that on spot market. A CAPM (Capital Asset
Pricing Model) based hedge ratio is used to apply the trading strategies generated
from spot market data on futures. The results show that this strategy generates
superior returns in the futures market.

Anahtar Kelimeler

Leverage Effect, Futures, Derivatives, Technical Indicators, CAPM Derivatives in Emerging Markets, Turkish Derivatives Market

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