ISSN 2167-0439
International Journal of Management and Business Studies ISSN 2167-0439 Vol. 7 (12), pp. 001-008, December, 2017. © International Scholars Journals
Full Length Research Paper
The relationship of price volatility between TSE and TAIFEX stock indices futures with different maturities
Yung-Chang Wang* and Wen-Rong Ho
Department of Banking and Finance, Chinese Culture University, 55 Hwa-Kang Road, Yang-Ming-Shan, Taipei 11114, Taiwan.
Accepted 13 September, 2017
Abstract
Using the data set from January 2, 2004 to April 28, 2006, this study examined all aspects of the relation between volatility in the cash index and volatility in the nearby-month and nearby-quarter index futures. The GARCH Model was first estimated to examine the impact of the futures volume growth on the conditional variance of the cash price and vice versa. Next, the conditional variances at the 10-day interval were calculated to derive the variance series for performing Granger-Causality Tests. Evidence from the GARCH (1,1) estimation indicated that the cash volume growth lost the power in explaining its own price volatility when the futures volume growth was included in the conditional variance equation of the cash index return, the cash volume growth had no influences on volatility in the futures markets, and the trading volume growth of nearby-month index futures was most influential in explaining volatility in the three markets. The Granger Causality Test was performed for the co-integrated variance series in the context of the error correction model. Evidence indicated that there were one-way volatility spillovers from the index futures to the cash index and there were two-way volatility spillovers between the nearby-month and nearby-quarter index futures markets.
Key words: TSE stock index, TAIFEX stock index futures, GARCH, ECM, Granger causality, volatility.