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

G. Geoffrey Booth, Mustafa Chowdhury, Teppo Martikainen and Yiuman Tse
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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

Management Science, 1997, vol. 43, issue 11, 1564-1576

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.

Keywords: stock index futures; volatility spillovers; extreme value estimators; vector autoregression (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:43:y:1997:i:11:p:1564-1576

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