Based
on the approach suggested by Karolyi (1995), Longin and
Solnik (1995), and Karolyi and Stulz (1996), this paper
examines the impact of futures variables such as Currency,
Exchange Rates, Treasury Bills, Treasury Bonds, and Stock
Indices, on the integration process for cross-listed equities
in the UK. A primary focus of this study was to relate the
volatility spillover effects for cross-listings across markets
with not only different regulatory structures but also with
the content of information (other than the past returns)
on volatility and correlation between markets.
La
Porta et al. (1998) capital market regulatory
classification was used to analyze the impact of information
contained in various futures contracts on volatility spillovers
between markets. The focus here is to examine the impact
of futures contracts on the integration process between
markets. The behavior of foreign cross-listed shares that
were listed in different regulatory environments were examined.
In particular, the paper analyzed the spillover effects
between foreign cross-listings in tougher, similar and more
lax regulatory environments with respect to the relevant
domestic indices (FTSE100) and also with the home portfolios
of cross-listed equities in the UK.
The
correlation of asset returns played a special role in the
finance literature. Since the seminal work of Longin and
Solnik (1995) and Karolyi and Stulz (1996), changes in correlations
between cross-country stock returns had been found to affect
the volatility of portfolios and asset prices. Longin and
Solnik (1995) used excess monthly returns for seven major
countries from 1960 to 1990 and found that correlations
increased overtime, were larger when large shocks occurred,
and were related to dividend yields and interest rates. |
