Working Paper: NBER ID: w4592
Authors: Takatoshi Ito; Wenling Lin
Abstract: This paper presents a comprehensive study of the interactions among returns, volatility, and trading volume between the U.S. and Japanese stock markets by using intradaily data from October 1985 to December 1991. By examining the effect of foreign price volatility and trading volume on correlations between foreign and domestic stock returns, the paper aims to distinguish between the market contagion and informational efficiency hypotheses in order to explain the cause of international transmission of stock returns and volatility. Major findings are three-fold: (1) contemporaneous correlations of stock returns across these two markets are significant and tend to increase during a high volatility period, which support the informational efficiency hypothesis; (2) lagged volatility and volume spillovers are not found across the two markets; (3) the effect of the New York stock returns on the Tokyo returns exhibits a structural change in October 1987.
Keywords: Price Volatility; Volume Spillover; Stock Markets; International Finance
JEL Codes: G15; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lagged volatility and volume spillovers (C58) | current returns (G12) |
| foreign price volatility (F31) | domestic stock returns (G12) |
| New York stock returns (G12) | Tokyo returns (F29) |