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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

    as
    1. Richardson, Matthew & Smith, Tom, 1994. "A Direct Test of the Mixture of Distributions Hypothesis: Measuring the Daily Flow of Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(1), pages 101-116, March.
    2. Fleming, Jeff & Kirby, Chris & Ostdiek, Barbara, 1998. "Information and volatility linkages in the stock, bond, and money markets," Journal of Financial Economics, Elsevier, vol. 49(1), pages 111-137, July.
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    7. Ederington, Louis H & Lee, Jae Ha, 1993. "How Markets Process Information: News Releases and Volatility," Journal of Finance, American Finance Association, vol. 48(4), pages 1161-1191, September.
    8. Foster, F Douglas & Viswanathan, S, 1993. "The Effect of Public Information and Competition on Trading Volume and Price Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 23-56.
    9. 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.
    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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    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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