Cross-market correlations and transmission of information

✍ Scribed by Salim M. Darbar; Partha Deb

• Book ID: 102217874
• Publisher: John Wiley and Sons
• Year: 2002
• Tongue: English
• Weight: 187 KB
• Volume: 22
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.10045

✦ Synopsis

Abstract

We investigate characteristics of cross‐market correlations using daily data from U.S. stock, bond,
money, and currency futures markets using a new multivariate GARCH model that permits direct hypothesis testing
on conditional correlations. We find evidence that arrival of information in a market affects subsequent
cross‐market conditional correlations in the sample period following the stock market crash of 1987, but
there is little evidence of such a relationship in the precrash period. In the postcrash period, we also find
evidence that the prime rate of interest affects daily correlations between futures returns. Furthermore, we
find that conditional correlations between currency futures and other markets decline steeply a few months
before the crash and revert to normal dynamics after the crash. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark
22:1059–1082, 2002