Lead-Lag Relationship between the Spot Index and Futures Price for the Turkish Derivatives Exchange

21 Pages Posted: 24 Oct 2009

See all articles by Ulkem Basdas

Ulkem Basdas

University of Michigan at Ann Arbor

Date Written: October 23, 2009

Abstract

This paper examines the lead-lag relationship between the Istanbul Stock Exchange 30 (ISE 30) Index and index futures prices at the Turkish Derivatives Exchange using daily observations from February 2005 to May 2008. It is found out that spot prices lead the futures prices for ISE 30 Index contrary to the results for different countries. Besides, the forecasting performances of Error Correction Model (ECM), ECM with Cost of Carry (COC), Autoregressive Integrated Moving Average (ARIMA) and Vector Autoregressive (VAR) Model are compared. The results support the superior performance of ECM. This study underlines the difference in direction of the lead-lag relation for Turkey that has a significant value for traders, and the performance of ECM for forecasting purposes.

Keywords: Stock Index Futures, ISE 30 Index, Error Correction Model, Cost of Carry Model, Forecasting, Lead-Lag Relation

JEL Classification: C22, G10

Suggested Citation

Basdas, Ulkem, Lead-Lag Relationship between the Spot Index and Futures Price for the Turkish Derivatives Exchange (October 23, 2009). Available at SSRN: https://ssrn.com/abstract=1493147 or http://dx.doi.org/10.2139/ssrn.1493147

Ulkem Basdas (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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