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Intraday Volatility in International Stock Index Futures Markets: Meteor Showers or Heat Waves?

Author

Listed:
  • G. Geoffrey Booth

    (E. J. Ourso College of Business Administration, Louisiana State University, Baton Rouge, Louisiana 70803)

  • Mustafa Chowdhury

    (Financial Research Department, Federal Home Loan Mortgage Corporation, McLean, Virginia 22102)

  • Teppo Martikainen

    (School of Business Studies, University of Vaasa, P.O. Box 700, FIN-65101 Vaasa, Finland)

  • Yiuman Tse

    (School of Management, Binghamton University (SUNY), Binghamton, New York 13902)

Abstract

The international transmission of intraday price volatility among the United States, United Kingdom, and Japanese stock index futures markets in the period 1988--1994 is investigated in this paper. The empirical results based on extreme-value estimators and vector autoregression indicate the rapid transmission of information between markets. The volatilities of the U.S. and U.K. futures markets appear to follow a meteor shower rather than a heat wave type of process. This means that these volatilities react to shocks from other markets, i.e., they cannot be described only by their past values. However, the heat wave hypothesis is not rejected for the Japanese market, meaning that the shocks to Japanese volatility are mostly country-specific. A multivariate GARCH model supports the U.K. and Japanese but not the U.S. results.

Suggested Citation

  • G. Geoffrey Booth & Mustafa Chowdhury & Teppo Martikainen & Yiuman Tse, 1997. "Intraday Volatility in International Stock Index Futures Markets: Meteor Showers or Heat Waves?," Management Science, INFORMS, vol. 43(11), pages 1564-1576, November.
  • Handle: RePEc:inm:ormnsc:v:43:y:1997:i:11:p:1564-1576
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    File URL: http://dx.doi.org/10.1287/mnsc.43.11.1564
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Eleanor Xu, Xiaoqing & Chen, Peter & Wu, Chunchi, 2006. "Time and dynamic volume-volatility relation," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1535-1558, May.
    2. Yannick LE PEN & Benoît SEVI, 2008. "Volatility transmission and volatility impulse response functions in European electricity forward markets," Cahiers du CREDEN (CREDEN Working Papers) 08.09.77, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
    3. Tse, Yiuman, 1998. "International transmission of information: evidence from the Euroyen and Eurodollar futures markets," Journal of International Money and Finance, Elsevier, vol. 17(6), pages 909-929, December.
    4. repec:dau:papers:123456789/6800 is not listed on IDEAS
    5. Le Pen, Yannick & Sévi, Benoît, 2010. "Volatility transmission and volatility impulse response functions in European electricity forward markets," Energy Economics, Elsevier, vol. 32(4), pages 758-770, July.
    6. Antonakakis, Nikolaos & Floros, Christos & Kizys, Renatas, 2016. "Dynamic spillover effects in futures markets: UK and US evidence," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 406-418.
    7. Nikkinen, Jussi & Sahlstrom, Petri, 2004. "International transmission of uncertainty implicit in stock index option prices," Global Finance Journal, Elsevier, vol. 15(1), pages 1-15.
    8. Smith, Kenneth L., 2001. "Pre- and post-1987 crash frequency domain analysis among Pacific Rim equity markets," Journal of Multinational Financial Management, Elsevier, vol. 11(1), pages 69-87, February.
    9. Giulio Cifarelli & Giovanna Paladino, 2001. "Volatility spillovers and the role of leading financial centres," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 54(216), pages 37-71.
    10. Vinay Datar & Raymond So & Yiuman Tse, 2008. "Liquidity commonality and spillover in the US and Japanese markets: an intraday analysis using exchange-traded funds," Review of Quantitative Finance and Accounting, Springer, vol. 31(4), pages 379-393, November.
    11. Antonakakis, Nikolaos & Kizys, Renatas & Floros, Christos, 2014. "Dynamic Spillover Effects in Futures Markets," MPRA Paper 53876, University Library of Munich, Germany.
    12. In, Francis, 2007. "Volatility spillovers across international swap markets: The US, Japan, and the UK," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 329-341, April.
    13. Gannon, Gerard, 2005. "Simultaneous volatility transmissions and spillover effects: U.S. and Hong Kong stock and futures markets," International Review of Financial Analysis, Elsevier, vol. 14(3), pages 326-336.
    14. repec:dau:papers:123456789/5450 is not listed on IDEAS
    15. Boppana Nagarjuna & Varadi Vijay Kumar, 2010. "Heat waves or Meteor showers: Empirical evidence from the stock markets," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 53(2), pages 57-74.

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