Information processing and measures of integration: New York, London and Tokyo
AbstractEquity markets do not pass all overnight information into prices instantaneously at the opening of trade. The New York market takes up to 30 minutes after the opening time to absorb overnight foreign news, Tokyo takes about 90 minutes, and London about 120 minutes on average. These delays in information absorption are not commercially significant but do have implications for measures of market integration. We adjust intra-daily return series for non-instantaneous news absorption and then use adjusted series to predict opening price variation in three major equity markets. Because the adjusted daytime returns series are uncorrelated, we can accurately measure the size, and identify the sources, of transmissions. Overnight news, as represented by foreign daytime returns, explains 12% of opening price variation (close-open returns) in New York, 14% in Tokyo and 30% in London. For New York and Tokyo, the largest influences come from the market that trades immediately prior (London and New York respectively) whereas opening price variation in London is linked closer with New York than Tokyo. Foreign volatility spillovers are also significant, and subject to asymmetry effects.
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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 177.
Date of creation: 01 May 2006
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GARCH; spillover; integration; transmission; efficiency;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-03 (All new papers)
- NEP-ETS-2006-06-03 (Econometric Time Series)
- NEP-FIN-2006-06-03 (Finance)
- NEP-FMK-2006-06-03 (Financial Markets)
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