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Linear and Nonlinear Intraday Dynamics between the Eurostoxx-50

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Abstract

We set out to analyse the linear and nonlinear dynamic behaviour of intraday returns in the Eurostoxx 50 index and its futures contract which, given their relatively recent appearance, have not yet been analysed. We shall develop our study both from an individual and from a combined approach. The results of the BDS test indicate that the variables are not iid and that the detected nonlinear individual dynamics cannot solely be explained by the presence of conditional heteroskedasticity. For the study of the dynamic relationships between both markets’ prices, we allow the adjustment process to the imbalance of the long term cointegration relationship to be nonlinear. We find cointegration with a nonlinear adjustment process. Finally, we show that the information flow is bidirectional both in the linear as well as in the nonlinear sphere.

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Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 0208.

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Length: pages 28
Date of creation: 2002
Date of revision:
Handle: RePEc:ucm:doicae:0208

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Keywords: Nonlinearity; BDS; Nonlinear error correction mechanism; Nonlinear causality; Eurostoxx50; Index futures.;

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  1. Hsieh, David A, 1989. "Testing for Nonlinear Dependence in Daily Foreign Exchange Rates," The Journal of Business, University of Chicago Press, vol. 62(3), pages 339-68, July.
  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  3. Hsieh, David A., 1993. "Implications of Nonlinear Dynamics for Financial Risk Management," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(01), pages 41-64, March.
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  6. Ludlow, Jorge & Enders, Walter, 2000. "Estimating non-linear ARMA models using Fourier coefficients," International Journal of Forecasting, Elsevier, Elsevier, vol. 16(3), pages 333-347.
  7. Gerald P. Dwyer, Jr. & Peter Locke & Wei Yu, 1995. "Index arbitrage and nonlinear dynamics between the S&P 500 futures and cash," Working Paper, Federal Reserve Bank of Atlanta 95-17, Federal Reserve Bank of Atlanta.
  8. Robert F. Engle & Victor K. Ng, 1991. "Measuring and Testing the Impact of News on Volatility," NBER Working Papers 3681, National Bureau of Economic Research, Inc.
  9. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-87, October.
  10. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
  11. Moosa, Imad A. & Silvapulle, Param, 2000. "The price-volume relationship in the crude oil futures market Some results based on linear and nonlinear causality testing," International Review of Economics & Finance, Elsevier, Elsevier, vol. 9(1), pages 11-30, February.
  12. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(4), pages 631-53, October.
  13. Abhyankar, A & Copeland, L S & Wong, W, 1997. "Uncovering Nonlinear Structure in Real-Time Stock-Market Indexes: The S&P 500, the DAX, the Nikkei 225, and the FTSE-100," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 15(1), pages 1-14, January.
  14. Hsieh, David A, 1991. " Chaos and Nonlinear Dynamics: Application to Financial Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 46(5), pages 1839-77, December.
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