Volatility Spillover Across Spot and Futures Markets: Evidence from Dual Financial System

Elsayed, Ahmed H; Asutay, Mehmet; ElAlaoui, Abdelkader O; Bin Jusoh, Hasim

Abstract

This paper investigates dynamic returns and volatility spillovers between spot and futures markets in a dual financial system. It further analyses the shock transmission of both volume trading and open interest in the futures market. Empirical results suggest that both spot and futures indices are net transmitters of return spillovers to the volume and open interest of the futures market, whereas the futures volume is the only net transmitter of volatility spillovers to all other variables. This is consistent with the Information Arrival Hypothesis theory. The empirical analysis also evidences the presence of a dynamic interdependence between both Islamic and conventional spot market volatilities and the futures market. In particular, the returns and volatility spillover are bidirectional and ricocheting-off transmission in nature. Specifically, such interdependence is stronger in the case of the Islamic spot index than the conventional spot index and during financial shocks.

Citation

Elsayed, A. H., Asutay, M., ElAlaoui, A. O., & Bin Jusoh, H. (2024). Volatility Spillover Across Spot and Futures Markets: Evidence from Dual Financial System. Research in International Business and Finance, 71, Article 102473. https://doi.org/10.1016/j.ribaf.2024.102473

• Journal Article Type: Article
• Acceptance Date: Jun 30, 2024
• Online Publication Date: Jul 11, 2024
• Publication Date: Aug 1, 2024
• Deposit Date: Jul 1, 2024
• Publicly Available Date: Jul 24, 2024
• Journal: Research in International Business and Finance
• Print ISSN: 0275-5319
• Electronic ISSN: 1878-3384
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 71
• Article Number: 102473
• DOI: https://doi.org/10.1016/j.ribaf.2024.102473
• Keywords: Spot and futures markets; Volatility spillovers; Volume and open interest; Islamic stocks Elsayed, Ahmed H; Asutay, Mehmet; ElAlaoui, Abdelkader O & Bin Jusoh, Hasim (2024) Volatility Spillover Across Spot and Futures Markets: Evidence from Dual Financial
• Public URL: https://durham-repository.worktribe.com/output/2513910