Introduction
Trading on currency future is becoming populous in Turkey day by day. Especially, the volatility
factor in underlying currency market is uncertain. In this paper author point out 3 important
findings. First, the results suggest that the introduction of futures trading has decreased the
volatility of Turkish currency market. Second, the results show that futures trading increases the
speed at which information is impounded into spot market prices. Third, the asymmetric
responses of volatility to the arrival of news have increased after the introduction of futures
trading. After the introduction of futures trading, there has been concern about
the impact of futures on underlying spot market. Specifically, the economic
literature intensified the debate on the negative or positive impact of futures
trading on the underlying market volatility
The first argument is that futures market increases market volatility and
futures market promotes speculation with the consequence of a boost in
volatility. The opposite argument is that futures market reduces spot market
volatility since futures market plays an important role of price discovery,
increases market depth and enhances efficiency. Moreover, futures market
provides the hedging opportunities to the market participants and so it
reduces the risk and stabilizes the market.
Literature Review
Lee and Ohk (1992) argue that the effect of the futures in index on the
volatility of the spot market differs from country to country, not only because
of the different structure of these markets but mainly due to the different
macroeconomic conditions prevailing in each country. Although there are
empirical studies for different countries with mixed results, most of them
focus on developed countries.
On the theoretical front, two opposing arguments exist in the literature about
the impact of the introduction of futures trading into the underlying spot
markets. The first group of researchers supports the argument that futures
