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Do bulls and bears move across borders? International transmission of stock returns and volatility |
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| Authors: | Lin W-L; Engle RF; Ito T |
| Institution: | 1 Department of Economics, University of Wisconsin-Madison, 1180 Observatory Drive, Madison, WI 53706, USA 2 University of California-San Diego and NBER, USA 3 Hitotsuhashi University, Harvard University, and NBER, USA z Corresponding author |
| Abstract: | 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. |
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