AVARAGE VOLATILITY SPREAD EFFECT BETWEEN THE OIL PRICES, DOLLAR EXCHANGE RATE AND THE STOCK MARKET: AN APPLICATION ON BIST-100

Fluctuations in oil prices and dollar exchange rates affect macroeconomic indicators, firms' production costs and sales revenues, raise market risk levels and may lead to economic instability. Therefore, it is important for the economic policy makers to follow the fluctuations of these two variables in order to manage the risk. Moreover, it is necessary for financial market participants to understand the mechanism of transfer of volatility between such variables in order to make better portfolio allocation decisions. The aim of this study is to examine the effects of average and volatility spread towards oil prices and dollar index to BIST100 index for the period of 18.09.2012-15.09.2017 and to compare the size of the effects in terms of oil prices and dollar exchange rate. EGARCH model, one of the volatility models, was used to examine the diffusion effects. The findings of the study indicate that the shocks that occur in the dollar exchange rate have a decreasing impact on the BIST100 index and the oil shocks have an increasing effect. When the findings were evaluated in terms of volatility spillover, there was no statistically significant effect of oil prices on the BIST100 index, while a positive effect is observed in the dollar exchange rate towards the BIST100 index. In addition, positive shocks may be more effective on BIST100 index volatility than negative shocks. These findings are valuable in terms of financial market participants