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Intraday return and volatility relationships between the Ibex 35 spot and futures markets

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  • Juan A. Lafuente

    ()
    (Departamento de Finanzas y Contabilidad, Universidad Jaume I, 12071 Castellón, Spain)

Abstract

This paper analyses the intraday lead-lag relationships between returns and volatilities in the Ibex 35 spot and futures markets. Using hourly data, we jointly analyze the interactions between markets, estimating a bivariate error correction model with GARCH perturbations which captures stochastically the presence of an intraday U-shaped curve for both spot and futures market volatility. Our findings show a bidirectional causal relationship between market volatilities, with a positive feedback. This two-way transmission of volatility is consistent with market prices evolving according to a long-run equilibrium relationship, and shocks affecting both markets in the same direction. Our empirical results also support a unidirectional cross interaction from futures to spot market returns. This pattern suggests that the futures market leads the spot market in order to incorporate the arrival of new information.

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Bibliographic Info

Article provided by Springer in its journal Spanish Economic Review.

Volume (Year): 4 (2002)
Issue (Month): 3 ()
Pages: 201-220

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Handle: RePEc:spr:specre:v:4:y:2002:i:3:p:201-220

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Keywords: Futures; stock index; conditional heteroskedasticity; market interactions;

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