The impact of oil price shocks on the volatility of the Turkish stock market
The objective of this paper is to examine the impact of oil price shocks on the volatility of Istanbul Stock Exchange National 100 index (ISE 100) ISE sector indices including ISE financial (ISE FIN) ISE industrial (ISE IND) and ISE Service (ISE SRV) applying EGARCH model of Nelson (1991) for the period spanning from January 1988 to April 2012. Our empirical analysis considers the volatility shifts due to the structural breaks in modelling volatility so that the modified version of the ICSS algorithm of Inclan and Tiao (1994) is used to detect possible volatility shifts. EGARCH model is conducted across both full sample and sub samples. The results reveal that the parameter estimates of variance equation in EGARCH models change across samples. This suggests that variance breaks are empirically a relevant feature of ISE and sector indices in a developing country, Turkey. ISE 100 and sector indices have unique characteristics and the characteristics have to be taken into account.