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The Effect of Index Warrant Trading on the Underlying Volatility in the Post-Crisis Period

The Effect of Index Warrant Trading on the Underlying Volatility in the Post-Crisis Period

Yusuf I. Mugaloglu
Copyright: © 2013 |Pages: 14
ISBN13: 9781466630062|ISBN10: 146663006X|EISBN13: 9781466630079
DOI: 10.4018/978-1-4666-3006-2.ch017
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MLA

Mugaloglu, Yusuf I. "The Effect of Index Warrant Trading on the Underlying Volatility in the Post-Crisis Period." Technology and Financial Crisis: Economical and Analytical Views, edited by Ali Serhan Koyuncugil and Nermin Ozgulbas, IGI Global, 2013, pp. 195-208. https://doi.org/10.4018/978-1-4666-3006-2.ch017

APA

Mugaloglu, Y. I. (2013). The Effect of Index Warrant Trading on the Underlying Volatility in the Post-Crisis Period. In A. Koyuncugil & N. Ozgulbas (Eds.), Technology and Financial Crisis: Economical and Analytical Views (pp. 195-208). IGI Global. https://doi.org/10.4018/978-1-4666-3006-2.ch017

Chicago

Mugaloglu, Yusuf I. "The Effect of Index Warrant Trading on the Underlying Volatility in the Post-Crisis Period." In Technology and Financial Crisis: Economical and Analytical Views, edited by Ali Serhan Koyuncugil and Nermin Ozgulbas, 195-208. Hershey, PA: IGI Global, 2013. https://doi.org/10.4018/978-1-4666-3006-2.ch017

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Abstract

The global financial crisis of 2007-2008 led to a sharp decrease in asset prices and increased volatility in financial markets. Before the crisis, warrant trading was often justified by assuming a more stabilised complete market and lower volatility. The Istanbul Stock Exchange introduced a warrant market and trading of ISE-30 index-based warrants in 2010. The chapter examines the impact of index-based warrant trading on the volatility of underlying ISE-30 index during post-crisis period of 2009-2011. The study employed a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) approach. In order to scrutinize the influence of index warrant trading on the volatility of underlying, two GARCH (1,1) models were specified; one included the volume of index warrants in the conditional mean equation and the other included a dummy variable in the conditional variance equation. The results show that index warrant trading did not lead to lower underlying volatility over the post-crisis period.

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