Measuring equity market integration using uncorrelated information flows: Tokyo,London and New York

Equity markets do not pass all overnight information into prices instantly at the opening of trade. We adjust open-to-close return series for non-instantaneous information absorption and then use adjusted series to measure integration among three major equity markets. Because the adjusted daytime return series are uncorrelated, we can accurately measure the size, and identify the sources, of transmissions. Overnight news, as represented by foreign open-to-close returns, explains 13% of opening price variation (close-to-open returns) in New York, 14% in Tokyo and 30% in London. For New York and Tokyo, the largest influences come from the market that trades immediately prior (London and New York respectively) whereas opening price variation in London is linked closer with New York than Tokyo. Foreign volatility spillovers are also significant, and subject to asymmetric effects.     

Price Interactions in a Sequential Global Market: Evidence from the Cross-listed Stocks

In this paper, we investigate the pattern of dynamic interactions among the prices of those stocks that are cross-listed on the three major stock markets of the world, i.e. New York, London and Tokyo. Major findings are: first, regardless of the nationality of stocks, innovations in the 'home' market returns are always fed into the returns in the 'overseas' markets, with the former causing the latter in the Granger sense. However, innovations in the New York market returns of foreign stocks are fed back into their respective home markets, contributing to the price discovery there. Second, the 'succeeding' overseas market, which operates immediately after the home market, plays a dual-role: it conducts the home market innovations to the next-opening overseas market, as well as adds its own innovations. Third, the exchange rate changes substantially influence the overseas market returns, but not the home market returns. The exchange rates appear to play a role in the transmission mechanism mainly via the inter-market price parity.     

After-Hours Stock Prices and Post-Crash Hangovers

After-hours pricing in foreign equity markets of multiple-listed U.S. securities appeared to be efficient in predicting New York prices in the weeks immediately following the October 1987 crash but relatively uninformative in succeeding months. By contrast, daily changes in New York prices appear to be efficiently incorporated in after-hours trading on both the Tokyo and London exchanges throughout the sample period. This paper suggests that the asymmetry and temporal variations in cross-market correlations are consistent with rational investor behavior in equity markets with nonzero transaction costs and time-varying share price volatility.     

Bivariate Nonparametric Density Estimation of Stock Prices and Volume

This paper comprehensively investigates the joint movement of stock prices and trading volume of New York and Tokyo stock markets by undertaking nonparametric density estimation. Bivariate nonparametric density estimation has been reported as a powerful tool for revealing complicated relations between two variables. In application to finance, it is important to use a method robust for heavy-tailed densities, since the distributions of asset price changes are known to have heavy tails, and information about sudden and large price changes is contained in the tails. The empirical regularities found in this paper are mostly consistent with previous literature, but partially disagrees with the work of Gallant et al. (1992).     

Do bears and bulls swim across oceans? Market information transmission between greater China and the rest of the world

This study investigates returns and volatilities transmission across Greater China’s four emerging stock markets and three developed international markets, Tokyo, London, and New York. Using daily open and close price data from 1994 to 2001, we provide empirical evidence that the overnight returns on all the Greater China stock indices can be estimated by using information from at least one of the three developed markets’ daytime returns. The contemporaneous return spillovers are in general unidirectional from more advanced major international markets to the Chinese markets. However, split-sample analysis suggests that there is also evidence of bi-directional return spillovers after the 1997 Asian financial crisis. We also find that there are no one-period lagged return spillover effects from the three advanced markets to the Chinese markets, except for Taiwan. Finally, Mainland China’s two stock markets are not affected by contemporaneous nor delayed “bad news”.     

Impact of stock market trading on currency market volatility spillovers

This research aims to detect the volatility linkages among various currencies during operating and non-operating hours of three major stock markets (Tokyo, London and New York) by employing bivariate VAR-BEKK-GARCH model in selected currency pairs. In particular, the aim is to analyze whether the major stock markets have a differential impact on volatility linkages in currency markets. The results indicate that volatility linkages in intraday are far stronger then in daily results. One remarkable result is that rather than major currencies, some minor and exotic currencies play a leading role in volatility transmission during trading hours of major stock markets.     

Internationally cross-listed stock prices during overlapping trading hours: price discovery and exchange rate effects

We analyze exchange rates along with equity quotes for 3 German firms from New York (NYSE) and Frankfurt (XETRA) during overlapping trading hours to see where price discovery occurs and how stock prices adjust to an exchange rate shock. Findings include: (a) the exchange rate is exogenous with respect to the stock prices; (b) exchange rate innovations are more important in understanding the evolution of NYSE prices than XETRA prices; and (c) most (but not all) of the fundamental or random walk component of firm value is determined in Frankfurt.     

Identifying Permanent and Temporary Components in Daily and Monthly Japanese Stock Prices

The purpose of this study is to analyze time series of daily and monthly values for the Tokyo Stock Price Index (TOPIX) and stock price values for 15 companies listed on the Tokyo Stock Exchange, Section 1 (TSE-I), to determine the contribution of permanent and temporary components to Japanese stock prices. The existence of temporary components in the price series would imply that Japanese stock returns are partially predictable. The method of canonical correlation is used to determine components common to each series and the persistence of each component series is evaluated by estimating the amount of dependence in the series. The results suggest that Japanese stock prices contain a small temporary component. The fractionally integrated ARIMA (ARFIMA) model is used to characterize both the component series and an estimate of the temporary component for each original price series. The contribution of the temporary component to the total variation of the price series estimated. We find that, in general, the temporary component accounts for less than 8% of the variation in the daily price series and from 5% to 15% of variation in the monthly price series, indicating that there may be a small amount of predictability in Japanese stock prices.     

(Unusual) weather and stock returns—I am not in the mood for mood: further evidence from international markets

This paper investigates the explanatory power of weather variables deviations in two leading international financial trading centres (New York and London) on 58 global stock indices over the period September 2000 to December 2013. The empirical results find that unusual deviations of weather variables from their monthly averages have a statistically significant effect on stock returns across global returns. The paper also attempts to explain these effects through the sales and energy prices mechanisms. The results provide strong support to both mechanisms.     

Do bulls and bears move across borders? International transmission of stock returns and volatility

This article investigates empirically how returns and volatilitiesof stock indices are correlated between the Tokyo and New Yorkmarkets. Using intradaily data that define daytime and overnightreturns for both markets, we find that Tokyo (New York) daytimereturns are correlated with New York (Tokyo) overnight returns.We interpret this result as evidence that information revealedduring the trading hours of one market has a global impact onthe returns of the other market. In order to extract the globalfactor from the daytime returns of one market, we propose andestimate a signal extraction model with GARCH processes.