Modelling International Price Relationships and Interdependencies between the Stock Index and Stock Index Futures Markets of Three EU Countries: A Multivariate Analysis

24 Pages Posted: 26 Sep 2003

See all articles by Antonios Antoniou

Antonios Antoniou

Wealth Associates

Gioia Pescetto

University of Portsmouth

Antonis Violaris

Durham University - Department of Economics and Finance

Abstract

This paper addresses the important relationship between stock index and stock index futures markets in an international context. By simply examining the spot-futures 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 VAR-EGARCH methodology, the paper investigates stock index and stock index futures market interdependence, that is lead-lag 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.

Suggested Citation

Antoniou, Antonios and Pescetto, Gioia Maria Rita and Violaris, Antonis, 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 & Accounting, Vol. 30, pp. 645-667, June 2003. Available at SSRN: https://ssrn.com/abstract=443751

Antonios Antoniou (Contact Author)

Wealth Associates ( email )

Alpine House,
Honeypot Lane
London, NW9 9RX
United Kingdom

Gioia Maria Rita Pescetto

University of Portsmouth ( email )

Richmond Building
Portland Street
Portsmouth, Hampshire PO1 3DE
United Kingdom
+44(0)2392844057 (Phone)
+44(0)2392844059 (Fax)

Antonis Violaris

Durham University - Department of Economics and Finance

Centre for Empirical Research in Finance (CERF) 23-26 Old Elvet
Durham DH1 3HY
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
16
Abstract Views
1,417
PlumX Metrics