Information Flows Between Eurodollar Spot and Futures Markets

Abstract

The pattern of information flows between Eurodollar spot and futures markets is examined using a robust two-step procedure. This procedure allows for conditional mean and variance dynamics as well as conditional heteroskedasticity. We find spot rates affect futures data and vice versa. In addition, there is evidence of volatility spillover between the two markets. Our results also indicate that information conveyed by data on futures tends to have a more persistent impact on both the mean and volatility of cash market price movements than the other way around (JEL C12, G15, G10).

Cross-market linkages between U.S. and Japanese precious metals futures trading

“…First, we allow a long-run equilibrium error in the conditional mean equation (Engle and Granger, 1987). This important factor has been recognized in the literature (Harris et al, 1995;Cheung and Fung, 1997;Ghosh et al, 1999). Second, we model asymmetric impacts on the volatility.…”

Information Role of U.S. Futures Trading in a Global Financial Market

“…Given the price-discovery function of the Eurodollar futures on its cash market (Cheung & Fung, 1997;Fung & Leung, 1993), it should not be surprising to find a greater impact of information flows in terms of volatility from the Singapore market to the United States.…”

“…First, we allow a long-run equilibrium error in the conditional mean equation (Engle & Granger, 1987). This important factor has been recognized in the literature (Cheung & Fung, 1997;Ghosh et al, 1999;Harris, McInish, Shoesmith, & Wood, 1995).…”

Interest rate dynamics and volatility transmission in the European short term interest rate market

“…However they find that historic spot price movements predict futures prices, so there is a form of bidirectional feedback between the two markets. The error correction term is found to be unstable over the time period, which is attributed to time varying risk premium in the pricing relationship between the markets and to the large increase in the Eurodollar futures trading in 1985. Cheung and Fung (1997 analyse the pattern of information flows and causality between Eurodollar spot and futures markets using prices and volatility spillover.…”