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Rev Fin 1991; 4:657-684
© 1991 the Society for Financial Studies

Article

Intraday volatility in the stock index and stock index futures markets

K Chan1, KC Chan2 and GA Karolyi2
1 Arizona State University, Arizona, USA
2 Academic Faculty of Finance, The Ohio State University, 318 Hagerty Hall, 1775 College Road, Columbus, OH 43210, USA

Abstract

We examine the intraday relationship between returns and returns volatility in the stock index and stock index futures markets. Our results indicate a strong intermarket dependence in the volatility of the case and futures returns. Price innovations that originate in either the stock or futures markets can predict the future volatility in the other market. We show that this relationship persists even during periods in which the dependence in the returns themselves appears to weaken. The findings are robust to controlling for potential market frictions such as asynchronous trading in the stock index. Our results have implications for understanding the pattern of information flows between the two markets.


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