International Interactions between Index Futures Markets: Testing Meteor Shower and Heat Wave Hypotheses on Turkey and US Markets

The heat wave hypothesis is that a market’s return and volatility are explained with its past values and are determined by country-specific effects. The meteor shower hypothesis refers that a market’s return and volatility can not be explained just with its past values and there are return and volatility spillovers to a market from others. In this study, the heat wave and meteor shower hypotheses are tested for Turkish and US index futures markets. In this context, the cointegration relationship and the return and volatility spillovers between markets are examined for 2010-2012 period using daily data with applying Johansen cointegration test and multivariate generalized autoregressive conditional heteroskedasticity model. In the study, the finding is reached that there is no long term relationship between US and Turkish markets. In terms of return spillovers across markets, there are one way spillovers from US market to Turkish market. The results for volatility spillovers across markets indicate that there are one way shocks spillovers from US market to Turkish market volatility. Thus, it is concluded that as US market supports the heat wave hypothesis, the Turkish market supports the meteor shower hypothesis. These results reflect the difference of information processing of markets and the US market is more informationally efficient.