Revisiting The Financial Volatility – Derivative Products Relationship On Euronext. Liffe Using A Frequency Domain Analysis

Claudiu Albulescu (), Daniel Goyeau () and Aviral Kumar Tiwaric
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Daniel Goyeau: Axe 2 (2011-2016) : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS de Poitiers - Maison des sciences de l'homme et de la société de Poitiers - UP - Université de Poitiers = University of Poitiers - CNRS - Centre National de la Recherche Scientifique, CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers
Aviral Kumar Tiwaric: ICFAI University Tripura - ICFAI University Tripura
Authors registered in the RePEc Author Service: Aviral Kumar Tiwari

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Abstract: The present paper analyse the relationship between the volume of transactions with futures equity index products and the return volatility of their underlying assets. The study addresses the case of five stock markets, members of the Euronext.liffe: London, Paris, Amsterdam, Brussels and Lisbon. We employ a frequency domain analysis, using monthly data for the period 2001.09 – 2010.06, which allows us to identify the direction of the causality between the derivatives volume and the index return volatility. In addition, we test the relationship between the volume of futures contracts and both negative and positive shocks in terms of historical volatility of index return. Our results prove the frequency-causality only in case of Brussels financial market. For Lisbon the relationship exists, but it is not validated by the confidence level tests, while for London, Paris and Amsterdam, no causality can be observed. In case of Brussels, there is bidirectional causality at short and long run frequencies. The futures equity index volume Granger-cause the positive shocks in term of volatility at long run and the negative shocks at short run.

Keywords: Frequency domain analysis; Granger causality; Financial volatility; Futures index products (search for similar items in EconPapers)
Date: 2013
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01368488
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Published in Brussels Economic Review , 2013, 56 (3/4), pp.349-364

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Journal Article: REVISITING THE FINANCIAL VOLATILITY–DERIVATIVE PRODUCTS RELATIONSHIP ON EURONEXT.LIFFE USING A FREQUENCY DOMAIN ANALYSIS (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01368488

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