Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility as the World Turns

39 Pages Posted: 12 Apr 2004 Last revised: 12 Sep 2010

See all articles by Wenling Lin

Wenling Lin

Office of Comptroller of Currency

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Takatoshi Ito

University of Tokyo - Faculty of Economics; National Bureau of Economic Research (NBER); Ministry of Finance, Tokyo

Date Written: November 1991

Abstract

This paper investigates empirically how returns and volatilities of stock indices are correlated between Tokyo and New York. Intradaily data are used, so that daytime and overnight returns are defined for both markets. Tokyo daytime hours overlap with New York overnight hours, while New York daytime hours overlap with Tokyo overnight hours. We find that in general Tokyo (Mew York) daytime returns are significantly correlated with New York (Tokyo) overnight returns. This suggests that information revealed during the trading hours of one market has a global impact on the returns of the other market. One exception is that after the October 1987 Crash, the Tokyo overnight returns were not significantly affected by New York daytime returns. We propose and estimate a signal extraction model with GARCH processes to determine the global factor from daytime returns. This is the problem of setting the opening price of a domestic market conditional on the foreign daytime returns. We also investigate lagged return and volatility spillovers. Except for a lagged return spillover from New York to Tokyo for the period after the Crash, there are no significant lagged spillovers in returns or in volatilities.

Suggested Citation

Lin, Wenling and Engle, Robert F. and Ito, Takatoshi, Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility as the World Turns (November 1991). NBER Working Paper No. w3911. Available at SSRN: https://ssrn.com/abstract=353754

Wenling Lin

Office of Comptroller of Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

Robert F. Engle (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Takatoshi Ito

University of Tokyo - Faculty of Economics ( email )

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Tokyo 113-0033
Japan

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States
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81-425-80-8333 (Fax)

Ministry of Finance, Tokyo ( email )

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100-8940 Tokyo
Japan
+81-3-3581-4720 (Phone)
+81-3-5251-2144 (Fax)

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