Title: Information and volatility linkages in the stock, bond, and money markets11This paper was previously under the title, `Volatility and common information in the stock, bond, and money markets’. We thank Paul Seguin (the referee) for numerous suggestions that substantially imporved the paper. We also received the helpful comments from Bill Schwert (the editor), David Ellis, Wayne Ferson, John Graham, Bruce Grundy, Kathleen Weiss Hanley, Larry Harris, George Kanatas, Tom Smith, Raul Susmel, and …
Abstract: We investigate the nature of volatility linkages in the stock, bond, and money markets. We develop a simple model of speculative trading that predicts strong volatility linkages in these markets due to common information, which simultaneously affects expectations across markets, and information spillover caused by cross-market hedging. To measure these linkages, we estimate a stochastic volatility representation of our trading model using GMM. The results indicate that our specification explains many of the observed characteristics of the data, and that the volatility linkages between the three markets are indeed strong. Moreover, we find that the linkages have become stronger since the 1987 stock market crash.
Publication Year: 1998
Publication Date: 1998-07-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 413
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