Measuring equity market integration using uncorrelated information flows

Tokyo, London and New York

George Milunovich*, Susan Thorp

*Corresponding author for this work

Research output: Contribution to journalArticle

4 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)275-289
Number of pages15
JournalJournal of Multinational Financial Management
Issue number4
Publication statusPublished - Oct 2007

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