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Volatility and Information Linkages Across Markets and Countries

Author

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  • Petra Fleischer

    (School of Finance and Applied Statistics, Australian National University, Canberra ACT 0200.)

Abstract

This study examines information and volatility linkages across the equity, money and bond markets within Australia and the US and across the two countries. These volatility linkages are due to common information and information spillovers caused by cross-market hedging. We employ a rational expectations framework in which information arrives randomly, causing volatility to be stochastic. The model imposes restrictions on the moments of returns which we estimate using GMM. We find that the model fits extremely well. The parameters are very stable across the various bivariate specifications. Cross-market linkages estimated using GMM are much stronger than those found with the commonly used proxies for volatility.

Suggested Citation

  • Petra Fleischer, 2003. "Volatility and Information Linkages Across Markets and Countries," Australian Journal of Management, Australian School of Business, vol. 28(3), pages 251-272, December.
    • Handle: RePEc:sae:ausman:v:28:y:2003:i:3:p:251-272
    DOI: 10.1177/031289620302800302
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    References listed on IDEAS

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    1. Tauchen, George E & Pitts, Mark, 1983. "The Price Variability-Volume Relationship on Speculative Markets," Econometrica, Econometric Society, vol. 51(2), pages 485-505, March.
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    7. Harvey, Campbell R & Huang, Roger D, 1991. "Volatility in the Foreign Currency Futures Market," The Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 543-569.
    8. Lamoureux, Christopher G & Lastrapes, William D, 1994. "Endogenous Trading Volume and Momentum in Stock-Return Volatility," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 253-260, April.
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    10. repec:bla:jfinan:v:44:y:1989:i:1:p:1-17 is not listed on IDEAS
    11. Andersen, Torben G, 1996. "Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Volatility," Journal of Finance, American Finance Association, vol. 51(1), pages 169-204, March.
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    2. Fausti, Scott W. & Qasmi, Bashir A. & Diersen, Matthew A., 2007. "Public Reporting of Fed Cattle Grid Prices: Policy Reform Consequences," Economics Staff Papers 7297, South Dakota State University, Department of Economics.
    3. Rothonis, Stephanie & Tran, Duy & Wu, Eliza, 2016. "Does national culture affect the intensity of volatility linkages in international equity markets?," Research in International Business and Finance, Elsevier, vol. 36(C), pages 85-95.

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