Dynamic Spillover Effects in Futures Markets

Antonakakis, Nikolaos and Kizys, Renatas and Floros, Christos (2014): Dynamic Spillover Effects in Futures Markets.

Abstract

Previous studies on spillover effects in future markets have so far confined themselves to static analyses. In this study, we use a newly introduced spillover index to examine dynamic spillovers between spot and futures market volatility, volume of futures trading and open interest in the UK and the US. Based on a dataset over the period February 25, 2008 to March 14, 2013, that encompasses both the global financial crisis and the Eurozone debt crisis, we find that spot and futures volatilities in the UK (US) are net receivers (net transmitters) of shocks to volume of futures trading and open interest. The analysis also sheds light on the dynamic interdependence of spot and futures market volatilities between the US and UK. Specifically, the spot and futures volatility spillovers between the UK and US markets are of bidirectional nature, however, they are affected by major economic events such as the global financial and Eurozone debt crisis. Overall, these results have important implications for various market participants and financial sector regulators.

• Item Type: MPRA Paper
• Language: English
• Keywords: Spot and Futures Markets, Volatility, Volume, Open Interest, Spillovers
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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