THE INTERNATIONAL TRANSMISSION OF INFORMATION IN EURODOLLAR FUTURES MARKETS - A CONTINUOUSLY TRADING MARKET HYPOTHESIS

This paper studies the transmission of information in three Eurodollar futures markets, the IMM, SIMEX and LIFFE. The results show that rele vant information is revealed during the trading hours of the IMM and L IFFE, but not the SIMEX. The interest rates of the three markets are c ointegrated with a single common stochastic trend. Granger-causality r uns from the market that is placed in the last trading order within 24 hours in the vector error correction model and this causal relationsh ip is shorter than one day. An approach of variance decomposition and impulse response functions exploring the common factor in the cointegr ation system is employed. Analogous to the causality results, the comm on factor is driven by the last trading market in the 24-hour trading sequence. Specifically, each market, while it is trading, impounds all the information and rides on the common stochastic trend. The overall results suggest that these three markets can be considered one contin uously trading market. (JEL G15, C32). Copyright (C) 1996 Elsevier Sci ence Ltd