Modelling international price relationships and interdependencies between the stock index and stock index futures markets of three EU countries : A multivariate analysis

Antoniou, A.; Pescetto, G.; Violaris, A.

Abstract

This paper addresses the important relationship between stock index and stock index futures markets in an international context. By simply examining the spotfutures relationship within a single country as most of the extant literature does and thus ignoring possible market interdependencies between countries, the dynamics of price adjustments may be misspecified and thus findings misleading. The main contribution of the paper is to improve our understanding of the pricing relationship between spot and futures markets in the light of international market interdependencies. Using a multivariate VAREGARCH methodology, the paper investigates stock index and stock index futures market interdependence, that is leadlag relationships and volatility interactions between the stock and futures markets of three main European countries, namely France, Germany and the UK. In addition, the paper explicitly accounts for potential asymmetries that may exist in the volatility transmission mechanism between these markets. The main conclusions of the paper imply that investors need to account for market interactions across countries to fully and correctly exploit the potential for hedging and diversification.

Citation

Antoniou, A., Pescetto, G., & Violaris, A. (2003). Modelling international price relationships and interdependencies between the stock index and stock index futures markets of three EU countries : A multivariate analysis. Journal of Business Finance and Accounting, 30(5-6), 645-667. https://doi.org/10.1111/1468-5957.05409

• Journal Article Type: Article
• Publication Date: Jun 1, 2003
• Deposit Date: Aug 19, 2008
• Journal: Journal of Business Finance and Accounting
• Print ISSN: 0306-686X
• Electronic ISSN: 1468-5957
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 30
• Issue: 5-6
• Pages: 645-667
• DOI: https://doi.org/10.1111/1468-5957.05409
• Public URL: https://durham-repository.worktribe.com/output/1625167