Impact of Futures on Comovements between European Cross-Listed Equities

Abstract

This paper develops the approach suggested by Karolyi (1995), Longin and Solnik (1995), and Karolyi and Stulz (1996) to examine the impact of futures variables (such as exchange rates, treasury bills, treasury bonds, and stock indices) on the integration process for cross-listed equities in Europe. A primary focus of this study is to relate the volatility spillover effects for cross-listings across markets first to different regulatory structures and second to the content of information (other than past returns) on volatility and correlation among markets. We find that futures variables have a significant impact on the magnitude and persistence of volatility spillovers among markets. Overall, we find that correlations between markets are not constant because information contained in futures contracts can affect the magnitude and the persistence of volatility spillovers significantly.

Keywords: Futures Contract; Stock Price Volatility; Cross-listed Equities

JEL Classification: G15