Return and Volatility Dynamics in the Spot and Futures Markets in Australia: An Intervention Analysis in a Bivariate EGARCH-X Framework
✍ Scribed by Ramaprasad Bhar
- Publisher
- John Wiley and Sons
- Year
- 2001
- Tongue
- English
- Weight
- 130 KB
- Volume
- 21
- Category
- Article
- ISSN
- 0270-7314
- DOI
- 10.1002/fut.1903
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✦ Synopsis
Abstract
This article provides evidence of linkages between the equity market and the index futures market in
Australia, where the futures market has experienced a major structural event due to the futures contract
respecification. A bivariate Exponential Generalized Autoregressive Conditional Heteroskedasticity
(EGARCH) model is developed that includes a cointegrating residual as an explanatory variable for both
the conditional mean and the conditional variance. The conditional mean returns from both markets are influenced
by the long‐run equilibrium relationship, and these markets are informationally linked through the second
moments. The crossmarket spillovers exhibit asymmetric behavior in that the volatility responses to past
standardized innovations are different for market advances and market retreats. An intervention analysis shows
that some of the parameters describing the return‐generating process have shifted after the contract
respecification by the futures exchange. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:833–850,
2001