Abstract :The aim of this paper is to analyze volatility spillover between two sector indices of Borsa Istanbul by using Multivariate GARCH model, namely DCC-GARCH model, and to determine causal relationship and the direction of the causality among each other by using Hong’s causality test. The data to be used covered daily close prices of BIST Financial and BIST Services sector indices in Borsa Istanbul from January 4, 2010 to July 24, 2018. The findings indicated that there was volatility spillover BIST Financial and BIST Services sector indices. As for causality analyses, the volatility spillover between two sector indices indicated bivariate causal relation in accordance with both the results of the Granger causality and Hong’s causality tests. The findings are important for market participants and investors to make properly optimal portfolio management and asset allocation. Keywords : DCC-GARCH model, Hong’s Causality, Volatility Spillover, Sector Indices
