The temporal relationship between derivatives trading and spot market volatility in the U.K.: Empirical analysis and Monte Carlo evidence

This article examines empirically the dynamic relationship between spot market volatility, futures trading, and options trading in the context of a trivariate simultaneous equations model. The empirical analysis provides strong evidence that significant simultaneity, in addition to feedback, characterizes the relationship between the proxy for time-varying spot market volatility and derivative trading. Also, futures trading and options trading are found to affect spot market volatility in opposite directions in the structural model proposed. The results, corroborated by Monte Carlo evidence, suggest that the failure to account for any contemporaneous interaction between the variables under consideration, as well as the omission of any of the two derivatives trading activities examined in this study, may generate serious misspecification and ultimately produce misleading estimation results and statistical inference. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 245–270, 1999     

Financial Integration in the GCC Region: Market Size Versus National Effects

Open Economies Review - This paper examines financial spillovers between the four largest equity markets (by market capitalization) in the GCC region using a VAR-GARCH (1,1) framework that sheds...     

The impact of the post-1972 floating exchange-rate regime on US exports

By employing the techniques of cointegration and error-correction models, this article empirically investigates the impact of the post-1972 floating exchange-rate regime on the volume of US bilateral exports to Canada, Germany, Japan and the UK. The econometric models specified in the analysis were estimated using quarterly data for the sample period 1959:1–1997:4. The empirical results provide evidence that the post-1972 exchange-rate regime is less conducive to trade than the Bretton-Woods fixed exchange rate regime.     

Rolling settlement and market liquidity

This paper investigates the impact on UK stock and option markets of the change from an account based settlement system to a rolling settlement procedure. Such a change increases the transaction costs of short-term margin traders, and is likely to impact on the liquidity of the underlying market, as well as trading in the options market. Evidence is presented that the settlement procedure does impact on the liquidity of the market. Further, we find that rolling settlement increased market liquidity, consistent with the exit of margin traders as a result of the increase in short selling costs. Associated with this increase in liquidity is a significant reduction in nonoptionable stock trading volume, implying that margin trading may have been more prevalent in stocks without options. Finally, it is shown that while trading in stock options increased, the volatilities implied from call and put option prices indicate that put options have become relatively more expensive. This reflects the change in demand induced by the new settlement procedure, especially in terms of the increase in short selling costs.     

European Union and Africa: Two decades of Lomé

In light of the fact that the most recent Lomé Convention is currently being renegotiated, this study attempts to assess the overall impact of the first three Lomé Conventions on the trade flows of a selected group of African, Caribbean, and Pacific countries (ACP) to the European Union (EU). A brief summary of the major findings is that the Lomé Conventions had no detectable impact on ACP countries' trade with the EU, except in the case of agricultural products during the Lomé I period and that ACP countries did better than non-ACP countries in their traditional markets only, i.e., Yaoundé ACP with the original six members of the EU and the Commonwealth ACP with the United Kingdom.