INTERNATIONAL TRANSMISSION OF INFORMATION - EVIDENCE FROM THE EUROYENAND EURODOLLAR FUTURES MARKETS

This paper examines the information transmission between Japan and the US by using the Tokyo Euroyen and Chicago Eurodollar futures. These t wo interest rate futures markets provide a better understanding of int ernational information transmission than stock markets, which have bee n shown to exhibit nonsynchronous trading and market segmentation. The results show that traders in Tokyo (Chicago) use information that is revealed overnight in Chicago (Tokyo). The bivariate EGARCH-t model pr ovides no evidence of volatility spillovers in either direction, sugge sting that the opening price rapidly reflects foreign information. The overall results support the hypothesis that the domestic market effic iently adjusts to foreign news. The results are also broadly consisten t with the covered interest arbitrage effects. (C) 1998 Published by E lsevier Science Ltd. All rights reserved.