Preliminary Inter-Temporal Volatility Spillovers and Price Dynamics Within and Between Spot and Futures Stock Markets

Formative studies have thoroughly examined causality within and between different spot and futures markets with a motivation to discover market co-movements, price leadership effects, and more recently, volatility spillovers across markets. However, the empirical framework within which this has been accomplished has neither analysed foreign spillover effects upon a spot / futures relationship nor allowed for time-varying cross correlations. This paper addresses these concerns by developing a quadvariate simultaneous-equation GARCH model where all correlations are time-varying. The results obtained will allow for a conducive study of the dynamic comovements of spot and futures markets whilst also accounting for foreign influences. The model herein is applied to examine the interaction between spot and futures stock indices on the All Ordinaries and S&P 500.