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Price discovery and volatility spillovers in the DJIA index and futures markets
Author(s) -
Tse Yiuman
Publication year - 1999
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/(sici)1096-9934(199912)19:8<911::aid-fut4>3.0.co;2-q
Subject(s) - futures contract , economics , price discovery , volatility (finance) , index (typography) , financial economics , econometrics , monetary economics , computer science , world wide web
The Dow Jones Industrial Average (DJIA) is the most widely quoted stock index worldwide. This article examines the minute‐by‐minute price discovery process and volatility spillovers between the DJIA index and the index futures recently launched by the CBOT. The Hasbrouck (1995) cointegrating model suggests that most of the price discovery takes place at the futures market. However, by examining the volatility spillovers between the markets based on a bivariate EGARCH model, a significant bidirectional information flow is found. That is, innovations in one market can predict the future volatility in another market, but the futures market volatility‐spillovers to the stock market more than vice versa. Both markets also exhibit asymmetric volatility effects, with bad news having a greater impact on volatility than good news. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 911–930, 1999