Intraday return and volatility relationships between the Ibex 35 spot and futures markets |
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Authors: | Juan A. Lafuente |
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Affiliation: | (1) Departamento de Finanzas y Contabilidad, Universidad Jaume I, 12071 Castellón, Spain (e-mail: lafuen@cofin.uji.es.) , ES |
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Abstract: | This paper analyses the intraday lead-lag relationships between returns and volatilities in the Ibex 35 spot and futures markets. Using hourly data, we jointly analyze the interactions between markets, estimating a bivariate error correction model with GARCH perturbations which captures stochastically the presence of an intraday U-shaped curve for both spot and futures market volatility. Our findings show a bidirectional causal relationship between market volatilities, with a positive feedback. This two-way transmission of volatility is consistent with market prices evolving according to a long-run equilibrium relationship, and shocks affecting both markets in the same direction. Our empirical results also support a unidirectional cross interaction from futures to spot market returns. This pattern suggests that the futures market leads the spot market in order to incorporate the arrival of new information. |
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Keywords: | JEL Classification:C51 G12 G13 |
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