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The temporal relationship between large‐ and small‐capitalization stock returns:
Author(s) -
Grieb Terrance,
Reyes Mario G.
Publication year - 2002
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/s1059-0560(02)00104-1
Subject(s) - econometrics , heteroscedasticity , bivariate analysis , autoregressive conditional heteroskedasticity , economics , index (typography) , stock market index , stock (firearms) , autoregressive model , financial economics , autocorrelation , volatility (finance) , statistics , stock market , mathematics , computer science , geography , context (archaeology) , archaeology , world wide web
In this study, we provide some evidence of Granger‐causal transmission of information to the correlation between large‐ and small‐cap stock indexes in the UK. We employ the bivariate Logistic Exponential Generalized Autoregressive Conditional Heteroscedasticity (LEGARCH) specification proposed by Darbar and Deb [Darbar, S. M., & Deb, P. (1999). Linkages among asset markets in the United States—tests in a bivariate GARCH framework . IMF Working Paper WP/99/158; Darbar, S. M., & Deb, P. (2000). Transmission of information and cross‐market correlations. Indiana University–Purdue University Indianapolis Working Paper.] and document correlation persistence, and a two‐way information flow. More specifically, information to the large‐cap stock index positively affects its next period correlation with the small‐cap index, whereas information to the small‐cap index negatively affects its next period correlation with the large‐cap index. We also find evidence supporting the presence of both a January effect and an April effect in both small‐cap and large‐cap returns.