International Market Linkages between the U.S. and Korea OTC Futures Markets: Information Transmission from NASDAQ100 Index Cash and Futures Markets to KOSDAQ50 Index Cash and Futures Markets

Abstract

This study tests the international transmission from NASDAQ100 index spot and NASDAQ100 index futures to KOSDAQ50 index spot and KOSDAQ50 index futures markets for the period of Jan. 2001 - Dec. 2002. Based on the time-varying AR(1)-GARCH(1,1)-M models, the results show that the open-to-close returns of the NASDAQ100 index spot and futures have predictive power over both the open-to-close and close-to-open returns of KOSDAQ50 index spot and futures. In particular, the open-to-close returns of both NASDAQ100 index spot and futures have much stronger effect over the close-to-open returns of KOSDAQ50 index spot. We also find that the NASDAQ100 index futures returns have strong predictive power over the KOSDAQ50 index futures returns similar to the results from the NASDAQ100 index spot. In addition, the tests show that the close-to-open returns of the NASDAQ100 index futures, rather than those of NASDAQ100 index spot have stronger information spillover effect over the open-to-close returns of both the KOSDAQ50 index spot and futures. The results also represent that there is co-movement between the KOSDAQ50 index spot and the NASDAQ100 index spot and between the KOSDAQ50 index futures and the NASDAQ100 index futures. These findings support that the market efficiency and the international stock market integration are on the increasing trend in terms of both mean and time varying volatility. Specifically, the results of the information spillover effects between NASDAQ100 index futures market and the KOSDAQ50 index futures market would provide useful information in country diversification and industry diversification. EFA Classification code: 630, 620