Intradaily Periodicity and Volatility Spillovers between International Stock Index Futures Markets

• Main Authors: WU, Chunchi, LI, Jinliang, ZHANG, Wei
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2005
• Subjects: Business; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/787
• Institution: Singapore Management University

This paper examines short-run information transmission between the U.S. and U.K. markets using the S&P 500 and FTSE 100 index futures. Ultrahighfrequency futures data are employed - which have a number of advantages over the low-frequency spot data commonly used in previous studies - in establishing that volatility spillovers are in fact bidirectional. The generalized autoregressive conditionally heteroskedastic model (GARCH) is employed to estimate the mean and volatility spillovers of intraday returns. A Fourier flexible function is utilized to filter the intradaily periodic patterns that induce serial correlation in return volatility. It was found that estimates of volatility persistence and speed of information transmission are seriously affected by intradaily periodicity. The bias in parameter estimation is removed by filtering out the intradaily periodic component of the transaction data. Contrary to previous findings, there is evidence of spillovers in volatility between the U.S. and U.K. markets. Results indicate that the volatility of the U.S. market is affected by the most recent volatility surprise in the U.K. market.