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Return and Volatility Dynamics in the Spot and Futures Markets in Australia: An Intervention Analysis in a Bivariate EGARCH‐X Framework
Author(s) -
Bhar Ramaprasad
Publication year - 2001
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/fut.1903
Subject(s) - futures contract , economics , econometrics , volatility (finance) , bivariate analysis , financial economics , heteroscedasticity , conditional variance , futures market , equity (law) , autoregressive model , autoregressive conditional heteroskedasticity , statistics , mathematics , political science , law
This article provides evidence of linkages between the equity market and the index futures market inAustralia, where the futures market has experienced a major structural event due to the futures contractrespecification. A bivariate Exponential Generalized Autoregressive Conditional Heteroskedasticity(EGARCH) model is developed that includes a cointegrating residual as an explanatory variable for boththe conditional mean and the conditional variance. The conditional mean returns from both markets are influencedby the long‐run equilibrium relationship, and these markets are informationally linked through the secondmoments. The crossmarket spillovers exhibit asymmetric behavior in that the volatility responses to paststandardized innovations are different for market advances and market retreats. An intervention analysis showsthat some of the parameters describing the return‐generating process have shifted after the contractrespecification by the futures exchange. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:833–850,2001