Chapter 3: An Analysis of Abnormal Extreme Price Movements within the Context of Volatility Parameter Shifts: A Case Study of Borsa Istanbul

Introduction: In this study, approaches based on right-tail unit root tests are used to analyze high-frequency time series. Although these approaches successfully capture unusually extreme price movements (bubbles) in financial markets, they can be biased in policymaking and forecasting. Testing the parameter stability enables the detection of both unusual price behavior and possible change points within the framework of the volatility approach. The break dates that cause the parameter change on the return series can be obtained, and the differentiation in the period can be seen.

Purpose: In this study, the analysis of periods that differ from the “changing parameter values” of the volatility process that emerged after November 2018 in the Borsa Istanbul (BIST) is made by using a new econometric approach in terms of change dates, parameter stability, and explosiveness characteristics. In this way, starting from determining periods with stable parameter values, the volatility process is tested to decide whether or not it shows an explosive feature.

Methodology: This study’s mainstay was published in February 2023. The findings reached within the framework of the knowledge provided by the technique in question will be the first in the applied literature. We used a uniform test for a mildly explosive GARCH process with double supreme statistics for BIST.

Findings: BIST is significantly affected by social and political events. This result implies that the “semi-efficient” market hypothesis for BIST needs to be re-examined in this context.