Date of Award

1997

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

G. Geoffrey Booth

Abstract

The purpose of this dissertation is to examine two issues in intraday information processing among the spot index and index futures and index options. The first issue is price discovery. The second one is volatility spillover, especially the asymmetric effects of innovations in one market on the volatility of other markets. In this dissertation, data on the German stock and index derivative markets are employed. The choice of Germany is primarily due to data availability. Therefore, the German data employed here are mainly for illustrative purposes and this study is not country specific. The choice of German data is also justified on the grounds of the size of the German market and the increasing importance of Germany in worldwide economy. The dissertation has five chapters. Chapter 1 is the introduction that covers the motivation and main findings of the dissertation. In addition, institutional details of the German security markets are also covered. Chapter 2 presents the descriptive statistics of the derivative markets and those of the stock index. An understanding of these descriptive statistics is useful in choosing the appropriate econometric techniques in the analysis. Chapter 3 examines the price discovery process. Apart from using Granger-causality tests to examine the lead-lag relationship between the index derivatives, this chapter contributes to the literature by examining the degree of information sharing in the stock index and index derivative markets. It is found that the spot index and index futures contain the most information in the price discovery process and there is there is contemporaneous causality relationship among the three securities. Chapter 4 explores volatility spillovers between the index securities. This chapter extends Chapter 3 by examining the information processing mechanism through the second moment. It is found that volatilities of the three securities spillover to one another. Together with the evidence presented in Chapter 3, the three securities should be considered as a whole system in the intraday information processing mechanism. Chapter 5 gives the summary and conclusions.

ISBN

9780591591637

Pages

204

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