TY - JOUR
T1 - Measuring equity market integration using uncorrelated information flows
T2 - Tokyo, London and New York
AU - Milunovich, George
AU - Thorp, Susan
PY - 2007/10
Y1 - 2007/10
N2 - Equity markets do not pass all overnight information into prices instantly at the opening of trade. We adjust open-to-close return series for non-instantaneous information absorption and then use adjusted series to measure integration among three major equity markets. Because the adjusted daytime return series are uncorrelated, we can accurately measure the size, and identify the sources, of transmissions. Overnight news, as represented by foreign open-to-close returns, explains 13% of opening price variation (close-to-open returns) in New York, 14% in Tokyo and 30% in London. For New York and Tokyo, the largest influences come from the market that trades immediately prior (London and New York respectively) whereas opening price variation in London is linked closer with New York than Tokyo. Foreign volatility spillovers are also significant, and subject to asymmetric effects.
AB - Equity markets do not pass all overnight information into prices instantly at the opening of trade. We adjust open-to-close return series for non-instantaneous information absorption and then use adjusted series to measure integration among three major equity markets. Because the adjusted daytime return series are uncorrelated, we can accurately measure the size, and identify the sources, of transmissions. Overnight news, as represented by foreign open-to-close returns, explains 13% of opening price variation (close-to-open returns) in New York, 14% in Tokyo and 30% in London. For New York and Tokyo, the largest influences come from the market that trades immediately prior (London and New York respectively) whereas opening price variation in London is linked closer with New York than Tokyo. Foreign volatility spillovers are also significant, and subject to asymmetric effects.
UR - http://www.scopus.com/inward/record.url?scp=34447282801&partnerID=8YFLogxK
U2 - 10.1016/j.mulfin.2007.02.001
DO - 10.1016/j.mulfin.2007.02.001
M3 - Article
AN - SCOPUS:34447282801
SN - 1042-444X
VL - 17
SP - 275
EP - 289
JO - Journal of Multinational Financial Management
JF - Journal of Multinational Financial Management
IS - 4
ER -