The relationship between derivative instruments and systematic risk: a study on banks trading on BIST

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This study is aimed to analyze the relationship between the use of derivative financial instruments for speculative and hedging purposes and systematic risk. The effect of the use of derivatives by seven banks trading on Borsa Istanbul during the period of June 2007 – December 2017 on systematic risk was studied using panel cointegration, causality and regression analyses. Banking sector was examined within the scope of the study, since the level of use of derivatives is high in this sector. It was identified in the study that there is a long-run cointegration relationship between the use of derivatives and systematic risk. It was also identified that there is a significant and negative relationship between the use of derivatives for speculative purposes and systematic risk. Furthermore, it was determined that there is a one-way causality relationship from the use of derivatives for speculative purposes towards systematic risk. However, there was no relationship identified between the use of derivatives for hedging purposes and systematic risk. On the other hand, significant and negative relationship was identified between swap transactions that banks use for speculative purposes and systematic risk, while there was no significant relationship determined between forward and option contracts and systematic risk.

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    • Table 1. Variables used in the model
    • Table 2. The results of multicollinearity analysis
    • Table 3. The results of test examining multicollinearity among derivatives
    • Table 4. Descriptive statistics
    • Table 5. The results of cross-sectional dependence test on the basis of panel and variable
    • Table 6. The results of the Pesaran and Yamagata (2008) homogeneity test
    • Table 7. The results of PANIC and LLC panel unit root tests
    • Table 8. The results of Kao and CUSUM cointegration tests
    • Table 9. The results of the Panel DOLS test
    • Table 10. The results of the Granger causality test based on panel VECM
    • Table 11. The results of panel data analysis