Relation between ISE 30 index and ISE 30 index futures markets: Evidence from recursive and rolling cointegration


  • Aysegul Ates Akdeniz University



Emerging markets, Index futures, ISE 30, Rolling cointegration.


Turkey is one of the most dynamic emerging markets in the world and its futures market has developed significantly since the introduction of futures contracts by Turkish Derivatives Exchange in 2005. Istanbul Stock Index 30 (ISE 30) futures was one of the first contracts introduced and its trading increased rapidly over time. This study specifically focuses on the evolution and stability of cointegration relationship between the futures and spot prices of ISE 30 index during the sample period from February 4, 2005 through October 19, 2012. We test whether changing market conditions have an impact on the long-run relationship between spot index and index futures markets by employing recursive and rolling cointegration techniques. The findings reveal that the cointegration relationship weakens significantly during the global financial crisis and eurozone debt crisis periods but holds mostly over the estimation period.

Author Biography

Aysegul Ates, Akdeniz University

Department of Economics, Associate Professor


Aggarwal, R., Lucey, B., Muckley, C. (2004). Dynamics of equity market integration in Europe: Evidence of changes over time and with events. IIIS Discussion Paper No.19.

Arshanpalli, B. and Doukas, C. (1997). The linkages of S&P 500 stock index and and S&P 500 stock index futures prices during October 1987. Journal of Economics and Business. 49: 253-266.

Brenner, R. J., Kroner, K. F. (1995). Arbitrage, cointegration and testing the unbiasedness hypothesis in financial markets. Journal of Financial and Quantitative Analysis. 30(1):22-42.

Brooks, C., Rew, A. G., & Ritson, S. (2001). A trading strategy based on the lead–lag relationship between the spot index and futures contract for the FTSE 100 International Journal of Forecasting, 17(1):31–44.

Cagli, E. C., Mandaci, P. E. (2013). The long run relationship between the spot and futures markets under multiple regime shifts: Evidence from Turkish derivatives exchange. Expert Systems with Applications. 40(10):4206-4212. /j.eswa. 2013.01.026

FIA Volume Growth Accelerates (2007). Futures Industry Association. Retrieved from: (accessed 28 June 2015).

FIA Annual Volume Survey (2013). Futures Industry Association. Retrieved from: (accessed 28 June 2015).

Floros, C., Vougas, D. V. (2008). The Efficiency of Greek stock index futures market. Managerial Finance. 34(7):498-519.

Garbade, K. D. and Silber, W. L. (1983). Price movements and price discovery in futures and cash markets. Review of Economics and Statistics, 65(2): 289-297.

Ghosh, A. (1993). Cointegration and error correction models: Intertemporal causality between index and futures prices. Journal of Futures Markets .13(2):193-8. fut.3990130206

Hansen, H., Johansen, S. (1999). Some tests for parameter constancy in cointegrated-VAR models. Econometric Journal. 2: 306-333.

Harris, F. T., McInish, T. H., Shoesmith, G. L., Wood, R. A. (1995). Cointegration, error correction and price discovery on informationally linked security markets. Journal of Financial and Qualitative Analysis. 30:563-579.

Hasbrouck, J. (1995). One security, many markets: Determining the contributions to price discovery. Journal of Finance. 50(4):1175-1199.

Hou, Y. and Li, S. (2013). Price discovery in Chinese stock index futures market: New evidence based on intraday data.Asia-Pacific Financial Markets. 20(1): 49-70.

Johansen, S. (1991). Estimation and hypothesis testing of cointegrating vectors in Gaussian vector autoregressive models. Econometrica, 59(6):1551-80. 10.2307/2938278

Kasman, A. and Kasman, S. (2008) The impact of futures trading on volatility of the underlying asset in the Turkish stock market. Physica A: Statistical Mechanics and its Applications, 387(12):2837-2845.

Kledion, A.W. and Whaley, R. E. (1992) One market? Stocks, futures, and options during October 1987.The Journal of Finance. 47(3):851-77.h ttp://

Kutan, A. M., Zhu, S. (2003). Has the link between the spot and forward exchange rates broken down? Evidence from rolling cointegration tests. Open Economies Review, 14(4): 369-379.

Lien, D., Tse, Y. K., & Zhang, X. (2003). Structural change and lead–lag relationship between the Nikkei spot index and futures price. A genetic programming approach. Quantitative Finance, 3(2), 136–144.

Lin, C. C., Chen, S. Y., Hwang, D. Y. and Lin, C. F. (2002). Does index futures dominate index spot? Evidence from Taiwan market. Review of Pacific Basin Financial Markets and Policies. 5(2):255-275.

Longin, F. and Solnik, B. (2001). Extreme correlation of international equity markets. The Journal of Finance.56(2): 649-676.

Pascual, A. G. (2003). Assessing European stock market cointegration. Economics Letters, 78: 197-203.

Pattarin, F. and Ferretti, R. (2004). The Mib30 index and futures relationship: Econometric analysis and implications for hedging. Applied Financial Economics, 14(18):1281–1289.

Pizzi, M.A., Economopous, A.J. and O’Neill, H.M. (1994) An examination of the relationship between stock index cash and futures markets: A cointegration approach. Journal of Futures Markets. 18:23-35.<297::AID-FUT4>3.0.CO;2-3

Rangvid, J., and Sørensen, C. (2002). Convergence in the ERM and declining numbers of common stochastic trends. Journal of Emerging Markets Finance, 1(2):183-213.

Stoll, H. R. and Whaley, E. R. (1990). The dynamics of stock index and stock index futures returns. Journal of Financial and Quantitative Analysis, 25, 4:441-468. 10.2307/2331010

Subrahmanyam, R. (1991). A Theory of trading in stock index futures. Review of Financial Studies. 4:17-51. 10.1093/rfs/4.1.17

Wahap, M. and Lashgari, M. (1993). Price dynamics and error correction in stock index futures markets: a cointegration approach. Journal of Futures Markets. 13: 711-742.

Wang, G. H. K. and Yau, J. (1994). A time series approach to testing for market linkage: unit root and cointegration tests. Journal of Futures Markets. 4(4): 457-474. 10.1002/fut.3990140407

Zhong, M., Darrat, A. F. and Otero, R. (2004). Price discovery and volatility in index futures markets: Some evidence from Mexico. Journal of Banking and Finance. 28(12):3037-3057.