Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility as the World Turns
AbstractThis paper investigates empirically how returns and volatilities correlated between Tokyo and New York stock indices (Nikkei 225 and s&p500). First, intradaily data are used, so that daytime and overnight returns are defined for both markets. Tokyo daytime hours overlap with New York overnight hours, while New York daytime hours overlap with Tokyo overnight hours. We find that in general Tokyo (New York) daytime returns are significantly correlated with New York (Tokyo) overnight returns. This suggests that information revealed during the trading hours of one market has a global impact on the returns of the other market. One exception is that after the crash, the Tokyo overnight returns are not significantly affected by New York daytime returns. A signal extraction model with GARCH processes, with intradaily data, is proposed to determine a global factor from daytime returns. This is problem of investors for pricing the opening price of a domestic market conditional on the foreign daytime returns. In addition, lagged returns and volatilities are investigated. Except for a lagged return spillover from New York to Tokyo for the period after the crash, there are no significant lagged spillovers in returns and volatilities are detected.
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Bibliographic InfoPaper provided by Wisconsin Madison - Social Systems in its series Working papers with number 9121.
Length: 37 pages
Date of creation: 1991
Date of revision:
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Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.
market ; economic models ; investments ; business cycles;
Other versions of this item:
- Wen-Ling Lin & Robert F. Engle & Takatoshi Ito, 1991. "Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility as the World Turns," NBER Working Papers 3911, National Bureau of Economic Research, Inc.
- Wen-Ling Lin & Robert F. Engle & Takatoshi Ito, 1992. "Do Bulls and Bears Move Acoross Borders: International Transimission of Stock Returns and Volatility as the World Turns," Discussion Paper Series a253, Institute of Economic Research, Hitotsubashi University.
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