financial markets and growth the last five years have witnessed a resurgence of interest in the relationship between financial intermediation and economic growth this issue had been extensively studied nearly two decades earlier by goldsmith 1969 mckinnon 1973 shaw 1973 and others who produced considerable evidence that financial development correlates with growth but their work though insightful lacked analytical foundations in traditional growth theory financial intermediation could be related to the level of the capital stock per worker or to the level of productivity but not to their respective growth rates the latter were ascribed to exogenous technical progress the recent revival of interest in the link between financial development and growth stems mainly from the insights and techniques of endogenous growth models which have shown that there can be self sustaining growth without exogenous technical progress and that the growth rate can be related to preferences technology income distribution and institutional arrangements this provides the theoretical underpinning that early contributors lacked tinancial intermediation can be shown to have not only level effects but also growth effects the resulting models have offered important insights into the effect of financial development on growth and vice versa they have also provided new impetus to empirical research on these issues this paper reviews the ground covered so far on the theoretical and empirical front and points to some still unresolved issues

s p 500 cash stock price volatilities s p 500 stock return volatilities are compared to the volatilities of a matched set of stocks after controlling for cross sectional differences in firm attributes known to affect volatility no significant difference in volatility is observed between 1975 and 1983before the start of trade in index futures and index options since then s p 500 stocks have been relatively more volatile the difference is statistically but not economically significant the relative increase occurs primarily in daily returns and only to a lesser extent in longer interval returns other factors besides the start of derivative trade could be responsible for the small increase in volatility stock price volatility has received much attention in the popular press over the last few years especially since the october 19 1987 stock market crash the rise in volatility has alarmed investors regulators and the public in general some suggest that the start of trade in stock index futures and index options increased speculative activity that in turn destabilized cash markets causing higher volatility large trading activity in the derivative contracts makes the suggestion plausible volume in index futures and index options increased dramatically since their introductions in 1982 and 1983 by 1987 the average daily dollar volume in the s p 500 futures contracts alone exceeded the dollar volume of cash s p 500 trade by a factor of about two while the dollar value of the daily net change in total open interest is about 8 of s p 500 stock dollar volume speculative trade in futures and options frequently is accused of destabilizing underlying cash markets the charge has been made for more than a century in the agricultural precious metal and currency markets recent evidence by french and roll 1986 showing stock variance to be strongly related to trading session hours heightens these concerns unfortunately theoretical analyses of whether speculative trade destabilizes cash markets lead to conflicting conclusions depending on what assumptions are made 1 school of business administration university of southern california and office of economic analysis u s securities and exchange commission i wish to thank mary denny mcsweeny and steve hornstein for their valuable research assistance and the referee and editor for their many suggestions and insights the opinions expressed in this paper do not necessarily reflect those of the u s securities and exchange commission or those of the author s colleagues on its staff an increase in well informed speculative trade has two opposite effects on measured volatility it decreases volatility due to order flow imbalances caused by uninformed traders because informed traders provide liquidity in such events and it increases volatility due to new fundamental information since the information which is assumed to be generated at discrete time intervals is impounded into

one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

information transmission in informationally linked markets evidence from us and chinese commodity futures markets abstract this paper investigates information transmission and price discovery in informationally linked markets within the multivariate generalized autoregressive conditional heteroskedasticity and information share frameworks based on both synchronous and non synchronous trading information from chinese futures spot markets the new york mercantile exchange nymex chicago board of trade cbot and cme globex futures markets for copper and soybeans we show that there is a bidirectional relationship in terms of price and volatility spillovers between us and chinese markets with a stronger effect from us to chinese markets than the other way around additionally the nymex and cbot play a more important role than the cme globex in the flow of information from us to chinese markets moreover we find that chinese copper market adjusts more quickly than the nymex copper market to correct the disparity between both markets however the converse is true in the case of soybeans finally our results highlight the remarkable role of chinese futures markets in the price formation process though nymex and cbot futures markets are the main driving force in price discovery

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

financial liberalization in sub saharan africa what do we know abstract beginning from the early 1980s countries in sub saharan africa embarked on financial liberalization policies with a view to reversing the ill effects of financial repression this paper provides a survey of financial liberalization in sub saharan african countries over the period 1980 to 2004 our review of empirical studies showed that financial liberalization has had diverse and contrasting effects on savings investment and economic growth most studies found a significant positive effect of financial liberalization on investment whereas its effect on savings has been largely insignificant the evidence on the effect on economic growth is inconclusive as different studies find contrasting results it is found that financial liberalization policies have not had the desired and expected results as both financial and macroeconomic variables have not improved following financial liberalization in these countries this calls for a rethinking of financial liberalization in sub saharan african countries it is important that financial liberalization is carried out in a stable macroeconomic environment in addition to this there should be a building and reform of institutions and the strengthening of prudential regulation following this financial liberalization can be embarked upon but it must be properly sequenced and not rushed

stock volatility and the levels of the basis and open interest in futures contracts this article tests a theoretical model of the basis and open interest of stock index futures the model is based on the differences between stock and futures in terms of investors ability to customize stock portfolios and liquidity empirical evidence confirms the model s prediction that increased volatility decreases the basis and increases open interest copyright 1995 by american finance association

international transmission of information evidence from the euroyen and eurodollar futures markets abstract this paper examines the information transmission between japan and the us by using the tokyo euroyen and chicago eurodollar futures these two interest rate futures markets provide a better understanding of international information transmission than stock markets which have been shown to exhibit nonsynchronous trading and market segmentation the results show that traders in tokyo chicago use information that is revealed overnight in chicago tokyo the bivariate egarch t model provides no evidence of volatility spillovers in either direction suggesting that the opening price rapidly reflects foreign information the overall results support the hypothesis that the domestic market efficiently adjusts to foreign news the results are also broadly consistent with the covered interest arbitrage effects

the scope and limits of financial liberalisation in developing countries a critical survey this article reviews the growing literature on financial reform in developing countries we draw both on the theoretical contributions outlining the case for and against liberalisation as well as on the experience of many developing countries with liberalisation we argue that the existence of market failures in financial markets hampers the liberalisation process and indeed suggests that the simple liberalising strategy envisaged in much of the literature is inappropriate we argue instead for an alternative strategy which integrates some aspects of liberalisation with the development of appropriate financial institutions designed to serve best the needs of the real economy

a transactions data test of stock index futures market efficiency and index arbitrage profitability this paper investigates the efficiency of the market for stock index futures and the profitability of index arbitrage for the chicago board of trade s major market index contracts the spot value of the index is computed with transactions prices for the component shares of the index obtained from the fitch database the tests account for transaction costs execution lags and the uptick rule for short sales of stocks results indicate that the size and frequency of boundary violations are substantially smaller than those reported by earlier studies and have declined sharply with time index arbitrage is a strategy whereby institutions brokerage houses or other large investors seek to profit from the spread between prices in the spot and futures markets for stock indices for example an investor might purchase predetermined baskets of stocks on the floor of the new york stock exchange and simultaneously sell a related index futures contract on the floor of the chicago board of trade hoping to profit from the price differences on the two exchanges computer programs constantly monitor stock and futures prices and automatically execute buy and sell orders when it appears that a profit is possible stock index futures can be priced by a simple arbitrage argument if the dividends paid by the underlying basket of shares and interest rates are nonstochastic markets are perfect and there are no taxes the pricing equation is

reexamining intraday simultaneity in stock index futures markets abstract this note examines three empirical examples involving intraday dynamic relationships associated with stock index futures markets researchers often employ a vector autoregressive var model to analyze such high frequency transactions data while such a model can provide useful information regarding the nature of causal priority inherent in the data it is not the proper model to investigate the structural relationships of interest because it omits the contemporaneous interaction on the other hand a var model specification which is altered to incorporate simultaneity may enable the data to reveal the structural relationships of interest

how smooth is price discovery evidence from cross listed stock trading abstract the adjustment to parity can be nonlinear for a cross listed pair convergence may be quicker when the price deviation is sufficiently profitable we propose a threshold error correction model ecm to gauge the market respective information shares of canadian listings traded on the toronto stock exchange tsx and the new york stock exchange nyse since dynamics may alternatively be gradual we further generalize the threshold framework to a smooth transition ecm the empirical implications are as follows first the tsx and the nyse appear to have integrated over time second parity convergence accelerates upon discounts on the cross listings on the nyse third we find a larger feedback from the nyse if the price gap exceeds the threshold required arbitrage return fourth informed traders tend to cluster on the nyse upon discounts on the cross listings fifth information share and threshold are affected by the relative degree of private information market friction and liquidity measures firm level characteristics and aggregate risks

conditional heteroscedasticity in time series of stock returns evidence and forecasts this article presents new evidence about the time series behavior of stock prices daily return series exhibit significant levels of second order dependence and they cannot be modeled as linear white noise processes a reasonable return generating process is empirically shown to be a first order autoregressive process with conditionally heteroskedastic innovations in particular generalized autoregressive conditional heteroskedastic garch 1 1 processes fit to data very satisfactorily various out of sample forecasts of monthly return variances are generated and compared statistically forecasts based on the garch model are found to be superior copyright 1989 by the university of chicago

the linkages persistence asymmetry in the volatility the price discovery and efficiency and the effect of the us subprime mortgage financial crisis on the spot and the futures market s returns the case of india abstractthis article examines the effects of persistence asymmetry and the us subprime mortgage crisis on the volatility of the returns and also the price discovery efficiency and the linkages and causality between the spot and futures volatility by using various classes of the arch and garch models and through the granger s causality we have used two indices one for spot and the other for futures for the daily data from 12 june 2000 to 30 september 2013 from nifty stock indices we have then tested for arch effects and subsequently employed various models of the arch and garch conditional volatility the garch 1 1 model is found to be significant and it implies that the returns are not autocorrelated and have short memory it supports the hypothesis of the efficiency of the markets the negative news has more significant effect on volatility corroborating the leverage impact in finance on market volatility we have also tested the volatility spillover effects the two methods we employed

optimal hedging under departures from the cost of carry valuation evidence from the spanish stock index futures market abstract we provide an analytical discussion of the optimal hedge ratio under discrepancies between the futures market price and its theoretical valuation according to the cost of carry model assuming a geometric brownian motion for spot prices we model mispricing as a specific noise component in the dynamics of futures market prices empirical evidence on the model is provided for the spanish stock index futures ex ante simulations with actual data reveal that hedge ratios that take into account the estimated time varying correlation between the common and specific disturbances lead to using a lower number of futures contracts than under a systematic unit ratio without generally losing hedging effectiveness while reducing transaction costs and capital requirements besides the reduction in the number of contracts can be substantial over some periods finally a mean variance expected utility function suggests that the economic benefits from an optimal hedge can be substantial

volatility in wheat spot and futures markets 1950 1993 government farm programs seasonality and causality we explore how wheat spot and futures market volatility has been impacted by government farm programs during the 1950 1993 period we find that changing volatility in both markets is highly associated with changing farm programs the mandatory allotment programs of the 1950s and early 1960s 1 3 50 4 10 64 were associated with low volatility while the voluntary programs initiated in the mid 1960s seem to have induced high volatility 4 11 64 12 22 85 both market driven loan rates and conservation reserve programs appear to have helped volatility revert to lower levels since the mid 1980s 12 23 85 12 30 93 we also examine seasonality and causality in conjunction with the farm programs we explore how wheat spot and futures price volatility has been impacted by government farm programs many studies have examined the effects of various farm policies mckinnon 1967 blakeslee 1980 miranda and helmberger

price discovery and volatility spillovers in index futures markets some evidence from mexico abstract this paper investigates the hypotheses that the recently established mexican stock index futures market effectively serves the price discovery function and that the introduction of futures trading has provoked volatility in the underlying spot market we test both hypotheses simultaneously with daily data from mexico in the context of a modified egarch model that also incorporates possible cointegration between the futures and spot markets the evidence supports both hypotheses suggesting that the futures market in mexico is a useful price discovery vehicle although futures trading has also been a source of instability for the spot market several managerial implications are derived and discussed

intraday relationships between volatility in s p 500 futures prices and volatility in the s p 500 index abstract this paper examines the intraday relationships between the volatility of s p 500 futures prices and the volatility of the s p 500 index we calculate variance measures for minute to minute price changes on a daily basis and across 30 minute intervals the empirical results indicate that i futures volatility is greater than index volatility ii volatility increased for both futures prices and the index in absolute terms from 1984 through 1986 iii both futures and index volatility increased directly with futures trading volume and iv index volatility was systematically greater during the first 30 minutes of trading each day than at other times granger tests however reveal no systematic pattern of futures volatility leading index volatility or index volatility leading futures volatility

an analysis of the spillover effects of exchange traded funds this article used the generalized autoregressive conditional heteroscedasticity autoregressive moving average garch arma and the exponentially generalized autoregressive conditional heteroscedasticity autoregressive moving average egarch arma models to study the impact of the spillover and the leverage effects on returns and volatilities of stock index and exchange trade fund etf for developed and emerging markets previous unexpected returns for developed and emerging markets which have an opposite influence pattern on etfs returns were identified the spillover effects from returns are excellent for hong kong followed by singapore meanwhile taiwan s stock index return was recorded to have a strong negative impact on etf return notably this article shows that the spillover effects on stock index and etf volatilities existed with bilateral influences despite a strong positive asymmetric volatility effect in korea s etf market the leverage effect appears to play important roles in the explana

the dynamics of stock index and stock index futures returns in rational efficiently functioning markets the returns on stock index and stock index futures contracts should be perfectly contemporaneously correlated this study investigates the time series properties of 5 minute intraday returns of stock index and stock index futures contracts and finds that sp however the effect is not completely unidirectional with lagged stock index returns having a mild positive predictive impact on futures returns

financial liberalization in africa abstract recent evidence has shown that african economies are financially repressed and the underlying motives for perpetuating repressive policies still exist increasing real deposit rates mainly through lower inflation promotes financial savings investment and growth financial liberalization in africa has recorded limited success owing to a high and unstable inflation rate the high cost of financial intermediation low bank demand for deposits and persistent government interference in credit markets chronically high fiscal deficits and their adverse impacts on the balance of payments also constitute hurdles for financial deepening in africa

time varying volatility spillover between chinese fuel oil and stock index futures markets based on a dcc garch model with a semi nonparametric approach abstract this paper reveals some new evidence on the volatility spillover between fuel oil and stock index futures markets in china by considering its time variant feature time varying effect is specified by the legendre polynomials in a dcc garch model moreover the semi nonparametric snp approach accounting for marginal excess kurtosis and asymmetry is applied we find different time evolving patterns of volatility spillover across multiple periods due to the structural breaks the direction of mean volatility spillover is found to be bilateral moreover the strength of mean volatility spillover shows that the effect from stock index to fuel oil futures is much stronger than the other way around this implies that the stock index futures market plays a leading role in information processing these findings have important implications for the fuel oil stakeholders as well as risk management

price discovery and volatility spillovers in the european union emissions trading scheme a high frequency analysis abstract this paper models the relationship of european union allowance spot and futures prices within the second commitment period of the european union emissions trading scheme based on high frequency data we analyze the transmission of information in first and second conditional moments to reveal long run price discovery we compute common factor weights of schwarz and szakmary 1994 and information shares of hasbrouck 1995 based on estimated coefficients of a vecm to analyze the short run dynamics we perform granger causality tests we identify the futures market to be the leader of the long run price discovery process whereas the informational role of the futures market increases over time in addition we employ a version of the ueccc garch model as introduced by conrad and karanasos 2010 to analyze the volatility transmission structure the volatility analysis indicates a close relationship between the volatility dynamics of both markets whereas in particular we observe spillovers from the futures to the spot market as a whole the investigation reveals that the futures market incorporates information first and then transfers the information to the spot market

information transmission and market interactions across the atlantic an empirical study on the natural gas market abstract this paper studies the international information transmission and market interactions in the u s and u k natural gas markets three well documented approaches are used to measure the relative importance on the process of price discovery under a quadvariate system after adjusting the effects of nonsynchronous trading prices robust results indicate our system that includes spot and futures prices within the two countries are driven by one common factor information disseminates efficiently among the four markets concerned the u s futures market dominates as the center for price discovery the u k futures market comes as the second the spot markets in the u s and u k are less efficient than their corresponding futures market where the u k spot market contributes the least and almost zero to the price discovery process asymmetric volatility spillovers are found in three of the four markets volatility in the u s futures market increases with positive returns which illustrates the inverse leverage effect in most of the commodity market volatilities in the spot markets are negatively related to returns which is analogous to the traditional leverage effect prevailing in most of the equity stock markets

the temporal price relationship between s p 500 futures and the s p 500 index this paper empirically examines the intraday price relationship between s p 500 futures and the s p 500 index using minute to minute data three stage least squares regression is used to estimate lead and lag relationships with estimates for expiration days of the s p 500 futures compared with estimates for days prior to expiration the results suggest that futures price movements consistently lead index movements by twenty to forty five minutes while movements in the index rarely affect futures beyond one minute

japan s financial deregulation and linkage of the gensaki and euroyen deposit markets summary this paper examines whether japan s financial deregulation weakened the linkage between the euroyen and gensaki markets it defines and analyses the linkage of the two markets in terms of the persistence and predictability of yield spreads as well as cross market causality by using johansen tests and an error correction model this paper shows first cross market causality before and after deregulation and second one common trend in interest rates substantial gensaki euroyen yield spreads and a slower response of the one month gensaki euroyen yield spread to a shock after deregulation

a further analysis of the lead lag relationship between the cash market and stock index futures market the intraday lead lag relation between returns of the major market cash index and returns of the major market index futures and s p 500 futures is investigated empirical results show strong evidence that the futures leads the cash index and weak evidence that the cash index leads the futures the asymmetric lead lag relation holds between the futures and all component stocks including those that trade in almost every five minute interval evidence indicates that when more stocks move together market wide information the futures leads the cash index to a greater degree this suggests that the futures market is the main source of market wide information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

can africa s saving collapse be reversed private saving in sub saharan africa declined from more than 11 percent of disposable income in the 1970s to less than 8 percent in the 1980s and only partially recovered to less than 9 percent in the 1990s this article analyzes the determinants of private saving in sub saharan africa seeking to explain the region s dismal performance and identify policies that could help to reverse the region s decline in saving the analysis shows that in sub saharan africa causality runs from growth to investment and perhaps to private saving whereas a rise m the saving rate granger causes an increase in investment the empirical analysis of private saving in sub saharan africa and other regions over 1970 95 suggests that private saving in africa can be explained by standard behavioral models according to these models private saving in africa lags behind that in other regions most notably the high performing asian economies because of the region s lower per capita income high young age dependency ratio and high dependence on aid the combined effects of these factors substantially outweigh africa s advantage from its lower public saving and higher government consumption finally analysis of the experiences of kenya zimbabwe and botswana provides further insight into the saving process in sub saharan africa

events that shook the market tick data on the standard and poor s 500 stock index s p 500 futures contract and newswire searches are used to match events to large 1 to 5 minute stock price changes sixty nine events that led to large stock price changes are identified between 1982 and 1999 53 of which are directly or indirectly related to monetary policy many large stock price changes have no events associated with them

impulse response function for conditional volatility in garch models this article defines and analyzes the impulse response function for conditional volatility in generalized autoregressive conditional heteroscedasticity garch models it first derives the function from a vector autoregressive and moving average representation of the garch models and obtains the corresponding standard errors from the first order derivatives of the function and the covariance matrix of the estimated parameters then this article employs a monte carlo study to assess the finite sample properties of the standard errors and provides an empirical example of the dependence of exchange rate volatility to demonstrate its use in empirical applications

a multivariate garch model of international transmissions of stock returns and volatility the case of the united states and canada this study examines the short run dynamics of returns and volatility for stocks traded on the new york and toronto stock exchanges the main finding is that inferences about the magnitude and persistence of return innovations that originate in either market and that transmit to the other market depend importantly on how the cross market dynamics in volatility are modeled moreover much weaker cross market dynamics in returns and volatility prevail during later subperiods and especially for canadian stocks with shares dually listed in new york implications for international asset pricing hedging strategies and regulatory policy are discussed

interest rate management in ldc s the mckinnon argument that higher time deposit rates raise output and lower inflation in the short run and increase medium term growth by raising the savings rate are shown to depend crucially on the assumption that portfolio shifts into td s come out of an asset providing less intermediation than the banking system we show that if instead the shift is out of an asset providing more intermediation e g loans on a curbmarket raising td rates is contractionary in the short run may have negative impacts on growth and can lead to more rather than less inflation in the short run

monitoring banking sector fragility a multivariate logit approach this article explores how a multivariate logit model of the probability of a banking crisis can be used to monitor banking sector fragility the proposed approach relies on readily available data and the fragility assessment has a clear interpretation based on in sample statistics the model has better in sample performance than currently available alternatives and the monitoring system can be tailored to fit the preferences of decision makers regarding type i and type ii errors the framework can be useful as a preliminary screen to economize on precautionary costs

good bye financial repression hello financial crash some unintended consequences of financial liberalization in latin america are analyzed in this paper intrinsic imperfectious in financial markets and the policy dilemmas they pose are reviewed first the stylized facts of southern cone experiments in financial liberization are then presented alternative ways of organlzing domestic capital markets under latin american conditions are discussed and an eclectic reform mongering program is proposed

dynamics of volatility transmission between the u s and the chinese agricultural futures markets the u s and china are two of the biggest players in the world agricultural market the literature documents that volatility in the u s agricultural futures market spills over significantly to that of china this article provides further insights into the spillovers from china to the u s as well as the time horizon and dynamics of the bidirectional spillovers through the application of a multivariate extension of the heterogeneous autoregressive model in relation to four commodities soybean wheat corn and sugar the results confirm the existence of significant spillovers from the u s to china for four commodities which are primarily generated by the shorter term volatility components in the u s and provide evidence for the increasing pricing power of the chinese market the findings are robust against various specifications and have important investment and policy implications

index arbitrage with heterogeneous investors a smooth transition error correction analysis abstract the traditional index arbitrage model assumes a constant threshold mispricing between the futures and cash prices for all investors allowing for heterogeneity in investors transaction costs objectives and capital constraints we model the intraday mispricing of djia futures as a smooth transition autoregressive star process with the speed of adjustment toward equilibrium varying directly with the mispricing we show that the observed mean reversion in mispricing changes is induced by heterogeneous arbitrageurs instead of a statistical illusion infrequent trading of index portfolio stocks we further use a star error correction model to describe the nonlinear dynamics between the djia futures and index this model describes not only which market is more informationally efficient than the other but also the legging process the nonsimultaneous establishing of cash and futures positions

stock market structure and volatility the procedure for opening stocks on the nyse appears to affect price volatility an analytical framework for assessing the magnitude of the structurally induced volatility is presented the ratio of variance of open to open returns to closeto close returns is shown to be consistently greater than one for nyse common stocks during the period 1982 through 1986 tbe greater volatility at the open is not attributable to the way in which public information is released since both the opento open return and the close to close return span the same period of time instead the greater volatility appears to be attributable to private information revealed in trading and to temporaryprice deviations induced by specialist and other traders the implied cost of immediacy at the open is significantly higher than at the close other empirical evidence in this article documents the volume of trading at the open the time delays between the exchange opening and the first transaction in a stock the difference in daytime volatility versus overnight volatility and the extent to which volatility is related to trading volume

asymmetric predictability of conditional variances we show that there is an asymmetry in the predictability of the volatilities of large versus small firms using both univariate and multivariate arma garch m parameterizations we find that volatility surprises to large market value firms are important to the future dynamics of their own returns as well as the returns of smaller firms conversely however shocks to smaller firms have no impact on the behavior of either the mean or the variance of the returns of larger capitalization companies article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

petroleum spreads and the term structure of futures prices we employ the term structure of gasoline and heating oil prices proxied by convenience yields to explain the variation in the spread between the prices of gasoline and crude oil and the prices of heating oil and crude oil we demonstrate that the marginal convenience yields in the gasoline and heating oil markets explained much of the variation in the spreads between 1986 and 1999 the evidence indicates the importance of a disaggregated treatment of the term structure of prices the convenience yield is found to explain a substantially higher amount of the variation in the spread when it is decomposed by maturity even after controls for seasonality and inventory levels are implemented these findings support the notion that the futures term structure contains information beyond what can be garnered via obvious or easily available proxies of current supply and demand the findings are also supported in an alternate specification that tests for the origins of information spillover leadership between t

macroeconomic determinants of domestic private investment in africa an empirical analysis during the late 1970s and early 1980s many african countries experienced a profound slowdown in economic growth the growth rate of real per capita gdp fell from 0 4 per year during the 1973 80 period to 1 2 per year during the 1980 89 period the causes internal and external of africa s economic decline and the strategies for restoring economic growth are much debated nevertheless broad consensus has emerged on the importance of i increasing total investment and ii promoting private sector development and increasing its share of total investment for long term growth 2 it is widely recognized that gross domestic investment fell substantially in africa during the 1980s and remains severely depressed across the region the proportion of total domestic investment in gdp fell from 20 8 per year during 1973 80 to 16 1 per year during 1980 89 in some countries investment has fallen to less than 10 of gdp a level that is insufficient even to replace depreciated capital in africa the minimum investment needed to replace depreciated capital is estimated at 13 of gdp 3 in recent years there has also been a growing recognition among many african leaders faced with new realism and pragmatism that the private sector could play a significant role in economic development the focus in the longer term of structural adjustment programs and sectoral reforms adopted by these countries is on creating more appropriate incentives and a framework for private sector development as the basis for achieving sustainable economic growth in addition multilateral and bilateral institutions have developed new initiatives with priorities for private sector development in 1989 the international finance corporation an affiliate of the world bank es

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

volatility volume co movements evidence from china metal markets abstractthis article investigates the interactional relationship between price volatility and futures trading activity for three heavily traded metal products on the shanghai metal exchange and the shanghai futures exchange using models based on vector autoregression and generalized method of moments we show in particular that futures trading activity has a strong impact on both spot and futures price volatility in copper and aluminium markets futures trading activity leads spot market volatility in copper and aluminium markets which suggests that futures markets have a destabilizing effect in order to disentangle the effect of different traders types on asset price movements we decompose futures trading into speculators and hedgers trading and investigate their contributions to volatility as a robustness check we investigate the impact of endogenous structural breaks on the interactional relationship between price volatility and futures trading

intraday volatility in the stock index and stock index futures markets we examine the intraday relationship between returns and returns volatility in the stock index and stock index futures markets our results indicate a strong intermarket dependence in the volatility of the cash and futures returns price innovations that originate in either the stock or futures markets can predict the future volatility in the other market we show that this relationship persists even during periods in which the dependence in the returns themselves appears to weaken the findings are robust to controlling for potential market frictions such as asynchronous trading in the stock index our results have implications for understanding the pattern of information flows between the two markets article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

stock volatility and the great depression stock return volatility during the great depression has been labeled a volatility puzzle because the standard deviation of stock returns was 2 to 3 times higher than any other period in american history we investigate this puzzle using a new series of building permits and leverage our results suggest that volatility in building permit growth and financial leverage largely explain the high level of stock volatility during the great depression markets factored in the possibility of a forthcoming economic disaster received september 30 2017 editorial decision august 27 2018 by editor philip e strahan authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

intraday relationships among index arbitrage spot and futures price volatility and spot market volume a transactions data test abstract this paper examines intraday temporal relationships among arbitrage spreads cash and futures price volatility and cash trading volume using transactions data for the major market index futures contracts and the component stocks of the index results indicate that changes in the spread have a significant impact on cash and futures price volatility as well as on cash trading volume the impact of the spread however is attenuated by the short sale restriction in the cash market contrary to popular beliefs a more volatile market leads to subsequent decreases in the spread probably because of increases in the supply of arbitrage services or faster price adjustments

the financial repression liberalization debate taking stock looking for a synthesis financial repression and liberalization became the object of fierce debates between academics and policy makers since the early 1970s as of the late 1980s financial liberalization became also part of the structural adjustment programs sponsored by the international monetary fund and the world bank however the literature on financial repression and liberalization remains controversial on its theoretical conclusions and policy implications given its importance for both the theory and policy of economic development and growth this paper looks for a possible synthesis after reviewing the theoretical contributions and empirical studies under the headings of the mckinnon shaw and new structuralists models the survey concludes that a new synthesis might be found in the post keynesian attempt to take an institutional perspective within a globalised financial and economic environment

stock index futures does the tail wag the dog the increase in program trading based on a comparatively narrow blue chip stock market barometer the major market index mmi is said to be fueling volatile price swings in the stock market a case of the tail wagging the dog the mmi is a price weighted index of 20 very actively traded stocks 16 of which are included in the dow jones 30 industrials because of its relatively small size the mmi is expected to be more easily arbitragible than other stock index futures contracts basically program trading involves taking a position long or short in a portfolio of stocks comprising the index and simultaneously taking an opposite position in the index futures contracts the objective of the program trade is to create a risk free position that earns a return in excess of the currently available risk free return program trades may move both the futures and the spot market the chain of causality may work as follows 1 investors believe the stock market will rise and they purchase futures contracts in expectation of higher equity values the purchase of the contracts is preferable to the purchase of the underlying stocks because it entails no initial investment and lower transaction costs 2 the rise in futures prices causes an imbalance between the prices of the futures and the underlying index as this premium between futures and index increases it may become profitable to execute a program trade 3 the simultaneous sale of futures and purchase of the underlying index will cause the premium between the futures and index to shrink changes in factors such as interest rates can also affect the equilibrium relation between the index price and the futures price thereby changing the premium or discount between the two markets program traders can take advantage of any change in the spread between the markets it does not matter what causes the change in spreads whether internal factors such as changes in investor expectations or external factors such as interest rate changes all program trading does is to bring cash and futures prices together the program trade may be an essential mechanism that ensures that futures prices and underlying equity prices are efficiently determined and that the hedging effectiveness of the futures contracts is reliable to date most of the literature on the impact of futures trading on the cash market has focused on changes in spot price volatility because of the initiation or cessation of futures trading a common conclusion of these studies is that the futures market has a smoothing effect on the cash market stabilizing the spot price the recent uproar engendered by the triple witching hour and the so called crises at expiration brings into question the smoothing influence that futures have on the underlying index 2 if the market is efficient prices adjust instantaneously to reflect all relevant information and knowledge of such information cannot lead to excess risk adjusted returns the central concept in the efficient market hypothesis is the fair game model 3 a sequence of past returns over time is a fair game if today s price reflects the then available information making it impossible to earn excess risk adjusted returns by trading on that information if the information set today contains all the information known and used by the market participants in the spot market in determining the spot price one of the components of the information set is the previous change in the price of futures contracts 4 does the tail wag the dog the financial press and the sec have answered this question in the affirmative 5 this note investigates the impact of the futures market on the spot market by evaluating the relation between index futures price changes and subsequent spot index price changes in addition we evaluate the degree to which the expiration of the futures contract affects the underlying index

index futures arbitrage and the behavior of stock index futures prices this article examines intraday transaction datafor s p 500 stock indexfutures prices and the intraday quotes for the underlying index the data indicate that thefutures price changes are uncorrelated and that the variability of these price changes exceeds the variability ofprice changes in the s p 500 index this excess variability of the futures over the index remains even after controlling for the nonsynchronous prices in the index quotes which induces autocorrelation in the index changes we advance and examine empirically two hypotheses regarding the difference between the futures price and its theoretical value that this mispricing increases on average with maturity and that it is path dependent evidence supporting these hypotheses is presented

the impact of the listing of options in the foreign exchange market abstract this paper documents the impact of the introduction of foreign currency options and options on foreign currency futures on the underlying securities we find that the volatility of exchange rates decreases following the listing of options for a majority of the currencies under consideration in addition we find that trading volume and open interest in currency futures increases after option introduction this evidence is consistent with the notion that derivative securities are important innovations for stabilizing and increasing liquidity in the market for the underlying assets

a note on the predictability of finnish stock market returns evidence from stock index futures markets abstract this paper provides further evidence on the predictability of the finnish stock market returns the results show the significant role of index futures returns as an important vehicle in stock market return and volatility prediction

market interactions in returns and volatilities between spot and forward shipping freight markets abstract the lead lag relationship in both returns and volatilities between spot and futures markets has been investigated extensively in the financial economics literature only a limited number of such studies have appeared on forward markets primarily due to the lack of easy access to empirical data this paper uses a unique database in over the counter forward freight agreements ffa to investigate the issue the underlying commodity is non storable being that of a shipping service with the additional feature of transactions costs being higher in the spot market in comparison to the forward market these features have interesting implications for the markets at the practical level the better understanding of the mean and variance dynamics can improve risk management and budget planning decisions

economic news and equity market linkages between the u s and u k abstract the source of equity market linkages between the u s and u k is investigated by focusing on intraday price movements of stock index futures contracts we document heightened u k return volatility at 11 30 a m and 1 30 p m gmt which corresponds to regular macroeconomic releases in the u k and u s respectively the response of u k equities in the half hour surrounding the u s announcements is significant and similar to price movements for u s equities to the same announcements these results support the hypothesis that the documented international equity market linkages are attributable to reactions of foreign traders to public information originating from the u s

national and international aspects of financial policies in ldcs a prologue after a period of animated controversy between keynesians advocating policies of low interest rates and monetary expansion and monetarists who insisted on the importance of the distinction between nominal and real interest rates economists have now almost reached a consensus on the role of money in the development process this consensus has arisen because it was increasingly felt that what was called for was not new concepts so much as new ways of looking at them in ldcs money s role need be neither denigrated nor exaggerated money s traditional functions as a medium of exchange and a store of value remain important in ldcs but its function as a conduit of resources from savers to investors is more central to an inderstanding of its contributions to development coats and khatkhate 1980 p 3 the body of the consensus derives from the framework set up by mckinnon and shaw fleshed out by the earlier work of goldsmith and patrick goldsmith 1969 patrick 1966 and extended by the theoretical and empirical output of a large number of younger economists fry 1981 this analysis attached central importance to financial policies of higher real interest rates which were supposed to encourage the build up of real money balances increased financial intermediation and unification of financial markets eventually such a policy would lead to the efficient utilization of resources and particularly of scarce capital this new paradigm has contributed to an improved understanding and perception of the economies of ldcs their problems and how these problems are accentuated by distortions arising from interventionist policies for a while it was believed that the programme contained the secret of how to reconcile stabilization objectives with those of development roe 1982 however the accumulation of empirical evidence on several developing countries where the prescribed set of policies was adopted has raised doubts about the validity of this conclusion in the presence of distortions in the financial markets it is no doubt a sensible policy to raise real interest rates the problematic issue is how far to go raising real interest rates without any regard for the rates of return on investment may run counter to the requirements of development to argue that once funds are generated through the accumulation of real balances investment can take care of itself ignores the very dynamics of development thus the hiatus between stabilization and development has not really been bridged this is evident from the recent concern with supply side policies rather than demand management policies a dichotomy which parallels the distinction between the stabilization and development problems it is this dual distinction which provides the theme of this special issue of world development

meteor showers or heat waves heteroskedastic intra daily volatility in the foreign exchange market this paper seeks to explain the causes of volatility clustering in exchange rates careful examination of intra daily exchange rates provides a test of two hypotheses heat waves and meteor showers the heat wave hypothesis is that the volatility has only country specific autocorrelation alternatively the meteor shower is a phenomenon of intra daily volatility spillovers from one market to the next using the garch model to specify the heteroskedasticity across intra daily market segments we find that the empirical evidence is generally against the null hypothesis of the heat wave using a volatility type of vector autoregression we examine the impact of news in one market on the time path of per hour volatility in other markets

financial liberalisation and economic development an assessment abstract the financial sector has always played a central role in economic development but analysis of its precise role has been hampered by the emphasis on real factors in the main stream of economic thought and the static nature of financial theory empirical studies confirm the importance of finance to economic development but are indecisive on the efficaciousness of the widely advocated policies associated with financial liberalisation to be successful strategies for financial liberalisation must deal with problems generated by asymmetric information and have policies to promote competition the disclosure of information and the maintenance of governmental integrity

the price variability volume relationship on speculative markets this paper concerns the relationship between the variability of the daily price change and the daily volume of trading on the speculative markets our work extends the theory of speculative markets in two ways first we derive from economic theory the joint probability distribution of the price change and the trading volume over any interval of time within the trading day and second we determine how this joint distribution changes as more traders enter or exit from the market the model s parameters are estimated by fiml using daily data from the 90 day t bills futures market the results of the estimation can reconcile a conflict between the price variability volume relationship for this market and the relationship obtained by previous investigators for other speculative markets this paper concerns the relationship between the variability of the daily price change and the volume of trading on speculative markets previous empirical studies 2 3 6 12 14 16 of both futures and equity markets always find a positive association between price variability as measured by the squared price change ap2 and the trading volume 2 there are two explanations for the relationship clark s 2 explanation which is secondary to his effort to explain why the probability distribution of the daily price change is leptokurtic emphasizes randomness in the number of within day transactions in clark s model the daily price change is the sum of a random number of within day price changes the variance of the daily price change is thus a random variable with a mean proportional to the mean number of daily transactions clark argues that the trading volume is related positively to the number of within day transactions and so the trading volume is related positively to the variability of the price change the second explanation is due to epps and epps 6 their model examines the mechanics of within day trading the change in the market price on each within day transaction or market clearing is the average of the changes in all of the traders reservation prices epps and epps assume there is a positive relationship between the extent to which traders disagree when they revise their reservation prices and the absolute value of the change in the market price that is an increase in the extent to which traders disagree is associated with a larger absolute price change the price variability volume relationship arises then because the volume of trading is positively related to the extent to which traders disagree when they revise their reservation prices

the october 1987 s p 500 stock futures basis five minute changes in the s p 500 index and futures contract are examined over a ten day period surrounding the october 1987 stock market crash since nonsynchronous trading problems are severe in these data new index estimators are derived and used the estimators use the complete transaction history of all 500 stocks nonsynchronous trading explains part of the large absolute futures cash basis observed during the crash the remainder may be due to disintegration of the two markets even after adjustment for nonsynchronous trading the index displays more autocorrelation than does the futures and the futures leads the index

expiration and maturity effect empirical evidence from the spanish spot and futures stock index the paper studies how the time remaining to the expiration date of derivative markets affects the volatility of the ibex 35 index expiration effect and its futures market maturity effect the innovation of the study lies in both effects being studied together for the spanish stock market using bivariate ecm garch including dummy variables that express the time left to expiration day the results obtained show that during the week of the expiration day the conditional variance of both markets increases without presenting any significant behaviour in the correlation level during the second week however the conditional variance diminishes and the degree of correlation between both markets increases

spillover effects in the global copper futures markets asymmetric multivariate garch approaches this study investigates changes in return and volatility spillovers between the lme comex and the shfe copper futures markets before and after the global financial crisis and after the introduction

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day

intraday price change and trading volume relations in the stock and stock option markets this study investigates intraday relations between price changes and trading volume of options and stocks for a sample of firms whose options traded on the cboe during the first quarter of 1986 after purging the price change series of the effects of bid ask spreads multivariate time series analysis is used to estimate the lead lag relation between the price changes in the option and stock markets the results indicate that price changes in the stock market lead the option market by as much as fifteen minutes the analysis of trading volume indicates that the stock market lead may be even longer the intense trading activity in and in fact the very existence of organized stock option markets attest to the economic benefits that these financial contracts provide reduced transaction costs and increased financial leverage are two reasons why trading in the stock option market may be more attractive than trading in the market for the underlying stock in addition these cheaper and more flexible trading opportunities attract new and differently informed investors to the marketplace the resulting increase in trading activity together with the inextricable arbitrage linkage between stock and option prices imply an increase in market efficiency this study investigates empirically the intraday price change and trading volume relations between stocks and options for a sample of firms whose options were actively traded on the chicago board options exchange during the first quarter of 1986 in particular intraday call option price changes are translated into implied stock price changes using the american call option pricing model these intraday implied stock price changes are then compared with the actual stock price changes to identify which if either market leads the other in perfectly functioning capital markets there should be complete simultaneity between the series that is new information disseminating into the marketplace should be reflected in the prices and the trading activity of both securities simultaneously institutional factors however may make the stock option market more attractive to information traders this may cause price changes and trading activity due to new information to be observed in the option market first followed by price

standard poor s 500 index futures volatility and price changes around the new york stock exchange close we examine the effects of the closing of the new york stock exchange nyse on volatility and price changes in the standard poor s s p futures market which trades for 15 more minutes each day when the nyse closes volatility in the futures market drops significantly only to increase at the close of the futures market thus exhibiting a u shaped pattern after the nyse closes we also find that friday s close is the period of highest volatility in the futures market also in the final minutes on friday the s p futures price anticipates the well known weekend effect found in equities copyright 1995 by university of chicago press

endogenous availability cartels and merger in an equilibrium price dispersion abstract in a generalization of the butters advertising model the equilibrium involves one firm that advertises at least twice as much as the others who all advertise equally a cartel formation game is considered and any equilibrium cartel involves at least two but generally not all firms in one equilibrium only the largest firms join the cartel a merger game is considered and in equilibrium the large firm buys the other firms in sequence with discounting equalizing the expected utility of the targets and prices rising over time journal of economic literature classification numbers d43 d83 l11 l13 l41

two stage perfect equilibrium in hotelling s model hotelling i 929 suggests that his spatial competition model can be used to describe a wide range of differentiation problems he points to the selection of product variety within an industry as a potential application most of the subsequent work in his tradition has taken the equivalence of the two problems for granted in this note we look more closely at this equivalence we distinguish between two types of differentiated products according to the variety of preferences assumed with respect to those products building on this distinction we recognize that the demand faced by a firm locating on hotelling s line is analogous to the demand faced by a firm selecting a horizontally differentiated product it should be emphasized thus that the equivalence between the geographical and the product selection problem is by no means general and relies on specific assumptions about consumers preferences next we formulate a small model close to hotelling s one in which firms select a horizontally differentiated product within this model it will be shown that a pure strategy price equilibrium exists for every pair of products this statement is to be contrasted with the results of d aspremont et al i979 who have shown that in the original hotelling s setting an equilibrium fails to exist when firms are too close together 1 in addition we will examine the product selection problem faced by firms in a two stage game in the first stage each firm selects a product in the second stage the firm defines a price for its product we will seek the existence of a perfect equilibrium in this game a perfect equilibrium in this context can be viewed as a nash equilibrium in a game in which firms select a product aware of the non cooperative price equilibrium that will occur for each of their choices it will be shown that contrary to hotelling s principle the two firms will maximise their differentiation i e firms will locate at opposite ends of the market

financial determinants of domestic investment in sub saharan africa evidence from panel data abstract this study investigates the effects of financial development on domestic investment in a sample of 30 sub saharan african countries it is based on a dynamic serial correlation investment model including various indicators of financial development controlling for country specific fixed effects and nonfinancial factors of investment the results indicate a positive relationship between domestic investment total investment and private investment and various indicators of financial development higher financial development leads to higher future levels of investment implying a potent long run effect of financial development on domestic investment the findings imply that financial development can stimulate economic growth through capital accumulation

the impact of brand selection on price competition a double edged sword brand selection the number of alternative brands of a particular product is a double edged sword in that on the one hand it increases rivalry and so stimulates price competition but on the other hand it causes consumers to be poorly informed and thus vulnerable to exploitation and so dampens price competition this phenomenon is demonstrated analytically and empirically with analytical work based on hotelling s unit market line using price dispersion as a measure of the state of price competition it is shown that a widening in price dispersion that is a lessening of price competition arises from an increase in brand selection any increase in the number of alternative brands on offer brand selection causes an increase in dif ness distortion in information function which in turn causes an increase in price dispersion a lessening of price competition the phenomenon is demonstrated empirically through a small survey of household beverages