The Intraday Multivariate Structure of the Eurofutures Markets
29 Pages Posted: 3 Aug 1998
Date Written: April 7, 1998
We investigate the multivariate intraday structure in interest rates, focusing on implied forward rates from Eurofutures contracts. Since futures markets are the most liquid for interest rate instruments and they yield high-quality intraday data, it is somehow surprising that their intraday behavior has not been thoroughly studied in the literature. We find interesting similarities with the foreign exchange market in terms of scaling law, intraday patterns, all of which point to the heterogeneity of market participants. Other properties like asymmetric causal information flow between fine and coarse volatilities for the same time series are present in our data. There are also lead/lag correlation across maturities and currencies, but they that tend to disappear as markets mature. A principal component analysis of the short end of the yield curve allows us to determine the most important components and to reduce the number of time series needed to describe the term structure. We find the decomposition rather stable over time. The first component which describes the curve level presents a HARCH effect while the remaining ones do not, having instead significant negative autocorrelations for the time series themselves. A HARCH model is applied to the first component and the impact of different market agents is discussed.
JEL Classification: G13
Suggested Citation: Suggested Citation
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