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REVISITING THE FINANCIAL VOLATILITY–DERIVATIVE PRODUCTS RELATIONSHIP ON EURONEXT.LIFFE USING A FREQUENCY DOMAIN ANALYSIS

par ALBULESCU, CLAUDIU TIBERIU;Goyeau, Daniel;TIWARI, AVIRAL KUMAR
Référence Brussels economic review, 56, 3-4, page (349-364), 9
Publication Publié, 2013

Article révisé par les pairs

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Résumé :

ABSTRACT:The present paper analyses the relationship between the volume of transactions with futuresequity index products and the return volatility of their underlying assets. The study addressesthe case of five stock markets, members of the Euronext.liffe. We employ a frequency domainanalysis to identify the direction of the causality. In addition, we test the relationship betweenthe volume of futures contracts and both negative and positive shocks in terms of the historicalvolatility of index returns. Our results indicate the frequency causality only in the case ofBrussels financial market. For Lisbon, the causality is present, but it is not validated by theconfidence level tests, while for London, Paris and Amsterdam, no causality can be observed. Inthe case of Brussels, the causality is bidirectional, both in the short and long run frequencies.The futures equity index volume Granger-causes the positive shocks in terms of volatility in thelong run and the negative shocks in the short run.