ESTIMATION OF STOCK RETURNS VOLATILITY AND SPILLOVERS AMONG DAX, S&P 500, AND XU100 USING GARCH AND CAUSALITY TESTS

The escalation of financial and economic interdependence among countries leads to the transmission of shocks in financial markets to other countries. Events such as the 2008 global financial crisis and the COVID-19 pandemic have induced considerable volatility in the stock markets of both developed and developing nations. This study estimated the conditional variance series of the DAX, S&P500, and XU100 indexes using the GARCH model based on their respective returns. The GARCH estimation results indicate that volatility clusters were present in all three index returns, particularly during the COVID-19 era; however, the intensity and frequency of these clusters were markedly heightened for the XU100 index during and after COVID-19. The causation link between the computed conditional variance series was assessed using the Granger and Toda-Yamamoto techniques. The findings indicate a bidirectional causal relationship between spillovers in the DAX and S&P500 indices. A relationship between DAXG and XU100G is evident at a 5% significance level; however, while XU100 strongly influences S&P500, no significant relationship is observed from SP500G to XU100G. The results indicate that volatilities in Turkish stock markets influence German and US stock markets, although all foreign shocks do not uniformly impact Turkish stock markets.