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Future Returns (future + return)
Selected AbstractsThe Implications of Dispersion in Analysts' Earnings Forecasts for Future ROE and Future ReturnsJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 1-2 2000Bong H. Han Dispersion in analysts' forecasts is empirically evaluated by associating dispersion with a firm's future accounting rate of return-on-equity (ROE) and future returns. Forecast dispersion is significantly and negatively associated with future ROE, consistent with the notion that firm disclosures and analysts' information acquisition efforts increase as firm prospects improve. Forecast dispersion is negatively associated with future returns. This appears due to the implications of dispersion for future ROE, and suggests that the market does not immediately assimilate the information contained in forecast dispersion. Dispersion also conveys information about firm-specific risk not captured by beta and firm size. [source] Modeling and Forecasting Realized VolatilityECONOMETRICA, Issue 2 2003Torben G. Andersen We provide a framework for integration of high,frequency intraday data into the measurement, modeling, and forecasting of daily and lower frequency return volatilities and return distributions. Building on the theory of continuous,time arbitrage,free price processes and the theory of quadratic variation, we develop formal links between realized volatility and the conditional covariance matrix. Next, using continuously recorded observations for the Deutschemark/Dollar and Yen/Dollar spot exchange rates, we find that forecasts from a simple long,memory Gaussian vector autoregression for the logarithmic daily realized volatilities perform admirably. Moreover, the vector autoregressive volatility forecast, coupled with a parametric lognormal,normal mixture distribution produces well,calibrated density forecasts of future returns, and correspondingly accurate quantile predictions. Our results hold promise for practical modeling and forecasting of the large covariance matrices relevant in asset pricing, asset allocation, and financial risk management applications. [source] Universal Banking, Asset Management, and Stock UnderwritingEUROPEAN FINANCIAL MANAGEMENT, Issue 4 2009William C. Johnson G24 Abstract This paper examines institutions that underwrite IPOs and have asset management divisions from 1993 through 1998. We provide evidence that these firms use asset management funds as vehicles to help them earn more equity underwriting business. We also show that asset managers affiliated with IPO underwriters use their superior information about their own institution's IPOs to earn annualised market adjusted returns 7.6% above asset managers of firms who did not underwrite the IPO. Superior future returns by asset managers who trade affiliated IPOs are dependent on the information environment for the IPO and the underwriter reputation rank. [source] Short-run Returns around the Trades of Corporate Insiders on the London Stock ExchangeEUROPEAN FINANCIAL MANAGEMENT, Issue 1 2002Sylvain Friederich Previous work examined the long-run profitability of strategies mimicking the trades company directors in the shares of their own company, as a way of testing for market efficiency. The current paper examines patterns in abnormal returns in the days around these trades on the London Stock Exchange. We find movements in returns that are consistent with directors engaging in short-term market timing. We also report that some types of trades have superior predictive content over future returns. In particular, medium-sized trades are more informative for short-term returns than large ones, consistent with Barclay and Warner's (1993) ,stealth trading' hypothesis whereby informed traders avoid trading in blocks. Another contribution of this study is to properly adjust the abnormal return estimates for microstructure (spread) transactions costs using daily bid-ask spread data. On a net basis, we find that abnormal returns all but disappear. [source] The Two Faces of Analyst CoverageFINANCIAL MANAGEMENT, Issue 2 2005John A. Doukas We find that positive excess (strong) analyst coverage is associated with overvaluation and low future returns. This finding is consistent with the view that excessive analyst coverage, driven by investment banking incentives and analyst self-interests, raises investor optimism causing share prices to trade above fundamental value. However, weak analyst coverage causes stocks to trade below fundamental values. This finding indicates that investors tend to believe that these firms are more likely to be plagued by information asymmetries and agency problems. The results remain robust after controlling for the possible endogenous nature of analyst coverage and analysts' self-selection bias. [source] Evidence and Implications of Increases in Trading Volume Around Exchange ListingsFINANCIAL REVIEW, Issue 2 2001Kishore Tandon G10 Abstract After controlling for market volume trends and differences in volume measurement between the Nasdaq and the exchanges, we find that mean trading volumes increase significantly for Nasdaq stocks that list on the Amex or the NYSE. Furthermore, stocks with low (high) pre-listing volume tend to realize the largest volume increases (decreases) as well as the best (worst) post-listing performance. Our results support the hypothesis that stocks with high past trading volumes tend to experience lower future returns, and shed new light on the nature and possible causes of poor post-listing stock performance. [source] Why Isn't More US Farmland Organic?JOURNAL OF AGRICULTURAL ECONOMICS, Issue 2 2010Nicolai V. Kuminoff D81; Q18 Abstract We develop a theoretical model to assess the dollar compensation required to induce conventional growers to convert to organic. The model incorporates the uncertainty in producers' expectations about future returns and about the impact of policy changes on these expectations in particular. We demonstrate that a new policy which favours organic can have opposing effects on the rate of conversion. An increase in relative returns to organic today will increase conversion rates. However, if the future of the policy programme is uncertain, its introduction can increase the value of waiting to switch, which will decrease conversion rates. We then develop an empirical switching regression model that enables direct estimation of the value associated with being able to postpone the conversion decision until some of the uncertainty is resolved. The model is applied to data on organic and conventional soybeans before and after major changes in US farm policy toward organic growers. The results suggest that sunk costs associated with conversion to organic coupled with uncertainty about future returns can help to explain why there is so little organic farmland in the USA. [source] Divergence of Opinion and Post-Acquisition PerformanceJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2007George Alexandridis Abstract:, We examine the relation between divergence of opinion about the value of the acquiring firm in the pre-acquisition announcement period and post-acquisition stock returns. We find that acquirers subject to high opinion dispersion earn lower future returns than acquirers subject to low dispersion. It appears that, on average, only acquirers in the high divergence of opinion subset experience significant negative post-event abnormal returns. In the spirit of Miller (1977), such evidence implies that high pre-event investor disagreement leads to systematic overpricing of acquirers that manifests itself through long-run underperformance of their stock. The documented misvaluation persists irrespective of the opinion divergence proxy and performance evaluation method used and after controlling for several common deal and acquirer characteristics. [source] Short Sales Constraints and Momentum in Stock ReturnsJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2006Ashiq Ali Abstract: We show that stock characteristics identified by D'Avolio (2002) provide a reliable index of the mostly unobservable short sales constraints. Specifically, we find that this index is positively related to the level of short interest and to short selling costs implied by the disparity in prices in the options and stock markets, and is negatively related to future returns. Using this index, we show that the magnitude of momentum returns for the period 1984 to 2001 is positively related to short sales constraints, and loser stocks rather than winner stocks drive this result. We conclude that short sales constraints are important in preventing arbitrage of momentum in stock returns. [source] The Implications of Dispersion in Analysts' Earnings Forecasts for Future ROE and Future ReturnsJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 1-2 2000Bong H. Han Dispersion in analysts' forecasts is empirically evaluated by associating dispersion with a firm's future accounting rate of return-on-equity (ROE) and future returns. Forecast dispersion is significantly and negatively associated with future ROE, consistent with the notion that firm disclosures and analysts' information acquisition efforts increase as firm prospects improve. Forecast dispersion is negatively associated with future returns. This appears due to the implications of dispersion for future ROE, and suggests that the market does not immediately assimilate the information contained in forecast dispersion. Dispersion also conveys information about firm-specific risk not captured by beta and firm size. [source] A THEORETICAL AND PRACTICAL PERSPECTIVE ON THE EQUITY RISK PREMIUM,JOURNAL OF ECONOMIC SURVEYS, Issue 2 2008Roelof SalomonsArticle first published online: 10 MAR 200 Abstract In historical perspective, equity returns have been higher than interest rates but have also varied a good deal more. However, the average excess return has been larger than what could be expected based on classical equilibrium theory: the equity risk premium (ERP) puzzle. This paper has two objectives. First, the paper presents a comprehensive overview of the vast literature developed aimed at adjusting theory and testing the robustness of the puzzle. Here we will show that the failure of theory to link asset prices to economics is mostly quantitative by nature and not qualitative (anymore). Second, beyond providing a survey of theory, we aim for a relevant practical angle as well. Our main contribution is that we spend time on why returns have been higher than investors reasonably could have expected. We present evidence that forecasts of equity returns can be enhanced by valuation models: low valuation levels (low price-to-earnings ratios) portend high subsequent returns. While conventional wisdom (several years ago) was to use historical returns to forecast future returns, a growing consensus now recognizes that the predictive power of valuation ratios is preferred. Finally we provide some practical implications based on this predictability. While the ERP is essentially a long-term issue, the likelihood of a lower risk premium increases risk for many and means that short-term volatility might not be neglected. [source] Book/market fluctuations, trading activity, and the cross-section of expected stock returnsREVIEW OF BEHAVIORAL FINANCE (ELECTRONIC), Issue 1-2 2009Amber Anand Abstract We analyze trading activity accompanying equities' switches from "growth" (low book-to-market ratios (BMRs)) to "value" (high BMRs), and vice versa. We find that a large BMR increase, that is a shift from growth to value, is accompanied by a strongly negative small order imbalance (OIB). Large OIB exhibits weaker patterns across stocks that experience large changes in book/market. The evidence indicates that growth-to-value shifts are more strongly related to small traders than large ones. The interaction of BMRs with order flows plays a crucial role in return predictability. Specifically, the predictive ability of BMRs for future returns is significantly enhanced for those stocks that have experienced book/market increases as well as high levels of net selling by way of small orders. Copyright © 2009 John Wiley & Sons, Ltd. [source] Corporate Political Contributions and Stock ReturnsTHE JOURNAL OF FINANCE, Issue 2 2010MICHAEL J. COOPER ABSTRACT We develop a new and comprehensive database of firm-level contributions to U.S. political campaigns from 1979 to 2004. We construct variables that measure the extent of firm support for candidates. We find that these measures are positively and significantly correlated with the cross-section of future returns. The effect is strongest for firms that support a greater number of candidates that hold office in the same state that the firm is based. In addition, there are stronger effects for firms whose contributions are slanted toward House candidates and Democrats. [source] A Rational Expectations Equilibrium with Informative Trading VolumeTHE JOURNAL OF FINANCE, Issue 6 2009JAN SCHNEIDER ABSTRACT A large number of empirical studies find that trading volume contains information about the distribution of future returns. While these studies indicate that observing volume is helpful to an outside observer of the economy it is not clear how investors within the economy can learn from trading volume. In this paper, I show how trading volume helps investors to evaluate the precision of the aggregate information in the price. I construct a model that offers a closed-form solution of a rational expectations equilibrium where all investors learn from (1) private signals, (2) the market price, and (3) aggregate trading volume. [source] The Diversification Discount: Cash Flows Versus ReturnsTHE JOURNAL OF FINANCE, Issue 5 2001Owen A. Lamont Diversified firms have different values from comparable portfolios of single-segment firms. These value differences must be due to differences in either future cash flows or future returns. Expected security returns on diversified firms vary systematically with relative value. Discount firms have significantly higher subsequent returns than premium firms. Slightly more than half of the cross-sectional variation in excess values is due to variation in expected future cash flows, with the remainder due to variation in expected future returns and to covariation between cash flows and returns. [source] Consumption, Aggregate Wealth, and Expected Stock ReturnsTHE JOURNAL OF FINANCE, Issue 3 2001Martin Lettau This paper studies the role of fluctuations in the aggregate consumption,wealth ratio for predicting stock returns. Using U.S. quarterly stock market data, we find that these fluctuations in the consumption,wealth ratio are strong predictors of both real stock returns and excess returns over a Treasury bill rate. We also find that this variable is a better forecaster of future returns at short and intermediate horizons than is the dividend yield, the dividend payout ratio, and several other popular forecasting variables. Why should the consumption,wealth ratio forecast asset returns? We show that a wide class of optimal models of consumer behavior imply that the log consumption,aggregate wealth (human capital plus asset holdings) ratio summarizes expected returns on aggregate wealth, or the market portfolio. Although this ratio is not observable, we provide assumptions under which its important predictive components for future asset returns may be xpressed in terms of observable variables, namely in terms of consumption, asset holdings and labor income. The framework implies that these variables are cointegrated, and that deviations from this shared trend summarize agents' expectations of future returns on the market portfolio. [source] Time variation in the tail behavior of Bund future returnsTHE JOURNAL OF FUTURES MARKETS, Issue 4 2004Thomas Werner The literature on the tail behavior of asset prices focuses mainly on the foreign exchange and stock markets, with only a few articles dealing with bonds or bond futures. The present article addresses this omission. It focuses on three questions using extreme value analysis: (a) Does the distribution of Bund future returns have heavy tails? (b) Do the tails change over time? (c) Does the tail index provide information that is not captured by a standard VaR approach? The results are as follows: (a) The distribution of high-frequency returns of the Bund future is indeed characterized by heavy tails. The tails are thinner for lower frequencies, but remain significantly heavy even for daily data. (b) There are statistically significant breaks in the tails of the return distribution. (c) The likelihood of extreme price movements suggested by extreme value theory differs from that obtained by standard risk measures. This suggests that the tail index does indeed provide information not contained in volatility measures. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:387,398, 2004 [source] Efficiency in the Pricing of the FTSE 100 Futures ContractEUROPEAN FINANCIAL MANAGEMENT, Issue 1 2001Joëlle Miffre This paper studies the pricing efficiency in the FTSE 100 futures contract by linking the predictable movements in futures returns to the time-varying risk and risk premia associated with prespecified factors. The results indicate that the predictability of the FTSE 100 futures returns is consistent with a conditional multifactor model with time-varying moments. The dynamics of the factor risk premia, combined with the variation in the betas, capture most of the predictable variance of returns, leaving little variation to be explained in terms of market inefficiency. Hence the predictive power of the instruments does not justify a rejection of market efficiency. [source] Regime-switching in stock index and Treasury futures returns and measures of stock market stressTHE JOURNAL OF FUTURES MARKETS, Issue 8 2010Naresh Bansal We investigate bivariate regime-switching in daily futures-contract returns for the US stock index and ten-year Treasury notes over the crisis-rich 1997,2005 period. We allow the return means, volatilities, and correlation to all vary across regimes. We document a striking contrast between regimes, with a high-stress regime that exhibits a much higher stock volatility, a much lower stock,bond correlation, and a higher mean bond return. The high-stress regime is associated with higher average values of stock-implied volatility, stock illiquidity, and stock and bond futures trading volume. The lagged implied volatility from equity-index options is useful in modeling the time-varying transition probabilities of the regime-switching process. Our findings support the notions that: (1) stock market stress can have a material influence on Treasury bond pricing, and (2) the diversification benefits of combined stock,bond holdings tend to be greater during times with relatively high stock market stress. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:753,779, 2010 [source] Hedging and value at risk: A semi-parametric approachTHE JOURNAL OF FUTURES MARKETS, Issue 8 2010Zhiguang Cao The non-normality of financial asset returns has important implications for hedging. In particular, in contrast with the unambiguous effect that minimum-variance hedging has on the standard deviation, it can actually increase the negative skewness and kurtosis of hedge portfolio returns. Thus, the reduction in Value at Risk (VaR) and Conditional Value at Risk (CVaR) that minimum-variance hedging generates can be significantly lower than the reduction in standard deviation. In this study, we provide a new, semi-parametric method of estimating minimum-VaR and minimum-CVaR hedge ratios based on the Cornish-Fisher expansion of the quantile of the hedged portfolio return distribution. Using spot and futures returns for the FTSE 100, FTSE 250, and FTSE Small Cap equity indices, the Euro/US Dollar exchange rate, and Brent crude oil, we find that the semiparametric approach is superior to the standard minimum-variance approach, and to the nonparametric approach of Harris and Shen (2006). In particular, it provides a greater reduction in both negative skewness and excess kurtosis, and consequently generates hedge portfolios that in most cases have lower VaR and CVaR. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:780,794, 2010 [source] Estimation and hedging effectiveness of time-varying hedge ratio: Flexible bivariate garch approachesTHE JOURNAL OF FUTURES MARKETS, Issue 1 2010Sung Yong Park Bollerslev's (1990, Review of Economics and Statistics, 52, 5,59) constant conditional correlation and Engle's (2002, Journal of Business & Economic Statistics, 20, 339,350) dynamic conditional correlation (DCC) bivariate generalized autoregressive conditional heteroskedasticity (BGARCH) models are usually used to estimate time-varying hedge ratios. In this study, we extend the above model to more flexible ones to analyze the behavior of the optimal conditional hedge ratio based on two (BGARCH) models: (i) adopting more flexible bivariate density functions such as a bivariate skewed- t density function; (ii) considering asymmetric individual conditional variance equations; and (iii) incorporating asymmetry in the conditional correlation equation for the DCC-based model. Hedging performance in terms of variance reduction and also value at risk and expected shortfall of the hedged portfolio are also conducted. Using daily data of the spot and futures returns of corn and soybeans we find asymmetric and flexible density specifications help increase the goodness-of-fit of the estimated models, but do not guarantee higher hedging performance. We also find that there is an inverse relationship between the variance of hedge ratios and hedging effectiveness. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:71,99, 2010 [source] Testing the martingale hypothesis for futures prices: Implications for hedgersTHE JOURNAL OF FUTURES MARKETS, Issue 11 2008Cédric de Ville de Goyet The martingale hypothesis for futures prices is investigated using a nonparametric approach where it is assumed that the expected futures returns depend (nonparametrically) on a linear combination of predictors. We first collapse the predictors into a single-index variable where the weights are identified up to scale, using the average derivative estimator proposed by T. Stoker (1986). We then use the Nadaraya,Watson kernel estimator to calculate (and visually depict) the relationship between the estimated index and the expected futures returns. We discuss implications of this finding for a noninfinitely risk-averse hedger. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:1040,1065, 2008 [source] The stock closing calland futures price behavior: Evidence from the Taiwan futures marketTHE JOURNAL OF FUTURES MARKETS, Issue 10 2007Hsiu-Chuan Lee This study examines the behavior of futures prices around stock market close before and after changes to the batching period of the stock closing call. On July 1, 2002, the Taiwan Stock Exchange expanded the length of the batching period roughly 10-fold, from an average of 30 seconds to 5 minutes. This change presents an opportunity to analyze how a stock closing method affects the behavior of index futures prices. Empirical results indicate that an increase in the length of the batching period affects the return volatility and trading volume of index futures contracts around stock market close. Furthermore, preclose stock returns have a great impact on extended futures returns when the batching period of the stock closing call is long. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:1003,1019, 2007 [source] Jumping hedges: An examination of movements in copper spot and futures marketsTHE JOURNAL OF FUTURES MARKETS, Issue 2 2006Wing H. Chan Price risk is an important factor for both copper purchasers, who use the commodity as a major input in their production process, and copper refiners, who must deal with cash-flow volatility. Information from NYMEX cash and futures prices is used to examine optimal hedging behavior for agents in copper markets. A bivariate GARCH-jump model with autoregressive jump intensity is proposed to capture the features of the joint distribution of cash and futures returns over two subperiods with different dominant pricing regimes. It is found that during the earlier producerpricing regime this specification is not needed, whereas for the later exchange pricing era jump dynamics stemming from a common jump across cash and futures series are significant in explaining the dynamics in both daily and weekly data sets. Results from the model are used to under-take both within-sample and out-of-sample hedging exercises. These results indicate that there are important gains to be made from a time-varying optimal hedging strategy that incorporates the information from the common jump dynamics. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:169,188, 2006 [source] Structurally sound dynamic index futures hedgingTHE JOURNAL OF FUTURES MARKETS, Issue 12 2005Paul Kofman Portfolio managers use index futures for a variety of reasons. Regardless of their motivation, they will keep a close eye on the relation between the index futures returns and their stock-portfolio returns. Whenever this relation is perceived to have changed, the manager will decide whether it is worthwhile to rebalance the index futures,portfolio mix accordingly. Exact measures as to when and how much rebalancing should occur have not yet been established. This article proposes a dynamic hedging algorithm based on a reverse order CUSUM-squared (ROC) testing procedure, first discussed in M. H. Pesaran and A. Timmermann (2002). A comparison with standard alternatives (naïve, expanding, EWLS, and rolling estimation windows) finds limited improvements in hedging performance, both in- and out-of-sample. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1173,1202, 2005 [source] Estimating the optimal hedge ratio with focus information criterionTHE JOURNAL OF FUTURES MARKETS, Issue 10 2005Donald Lien In recent years, the error-correction model without lags has been used in estimating the minimum-variance hedge ratio. This article proposes the use of the same error-correction model, but with lags in spot and futures returns in estimating the hedge ratio. In choosing the lag structure, use of the Akaike information criterion (AIC) and recently proposed focus information criterion (FIC) by G. Claeskens and N. L. Hjort (2003) is suggested. The proposed methods are applied to 24 different futures contracts. Even though the FIC hedge ratio is expected to perform better in terms of mean-squared error, the AIC hedge ratio is found to perform as well as the FIC and better than the simple hedge ratios in terms of hedging effectiveness. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1011, 1024, 2005 [source] Forecasting futures returns in the presence of price limitsTHE JOURNAL OF FUTURES MARKETS, Issue 2 2005Arie Harel In a futures market with a daily price-limit rule, trading occurs only at prices within limits determined by the previous day's settlement price. Price limits are set in dollars but can be expressed as return limits. When the daily return limit is triggered, the true equilibrium futures return (and price) is unobservable. In such a market, investors may suffer from information loss if the return "moves the limit." Assuming normally distributed futures returns with unknown means but known volatilities, we develop a Bayesian forecasting model in the presence of return limits and provide some numerical predictions. Our innovation is the derivation of the predictive density for futures returns in the presence of return limits. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:199,210, 2005 [source] A Markov regime switching approach for hedging stock indicesTHE JOURNAL OF FUTURES MARKETS, Issue 7 2004Amir Alizadeh In this paper we describe a new approach for determining time-varying minimum variance hedge ratio in stock index futures markets by using Markov Regime Switching (MRS) models. The rationale behind the use of these models stems from the fact that the dynamic relationship between spot and futures returns may be characterized by regime shifts, which, in turn, suggests that by allowing the hedge ratio to be dependent upon the "state of the market," one may obtain more efficient hedge ratios and hence, superior hedging performance compared to other methods in the literature. The performance of the MRS hedge ratios is compared to that of alternative models such as GARCH, Error Correction and OLS in the FTSE 100 and S&P 500 markets. In and out-of-sample tests indicate that MRS hedge ratios outperform the other models in reducing portfolio risk in the FTSE 100 market. In the S&P 500 market the MRS model outperforms the other hedging strategies only within sample. Overall, the results indicate that by using MRS models market agents may be able to increase the performance of their hedges, measured in terms of variance reduction and increase in their utility. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:649,674, 2004 [source] Nonlinear dynamics in high-frequency intraday financial data: Evidence for the UK long gilt futures marketTHE JOURNAL OF FUTURES MARKETS, Issue 11 2002David G. McMillan Recent research investigating the properties of high-frequency financial data has suggested that the stochastic nonlinearity widely present in such data may be characterized by heterogeneous components in conditional volatility, and nonlinear dependence of threshold autoregressive form due to market frictions. This article tests for the presence of such effects in intraday long gilt futures returns on the UK LIFFE market. Tests against the null of linearity indicate the significance of smooth transition autoregressive nonlinearities in such returns at the 5-min frequency, which entails a first-order autoregressive process with switching intercept. This nonlinear structure is robust to the presence of asymmetric and component structures in conditional variance, and consistent with the existence of heterogeneous traders facing different levels of transaction costs, noise trader risk, or capital constraints. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:1037,1057, 2002 [source] Cross-market correlations and transmission of informationTHE JOURNAL OF FUTURES MARKETS, Issue 11 2002Salim M. Darbar We investigate characteristics of cross-market correlations using daily data from U.S. stock, bond, money, and currency futures markets using a new multivariate GARCH model that permits direct hypothesis testing on conditional correlations. We find evidence that arrival of information in a market affects subsequent cross-market conditional correlations in the sample period following the stock market crash of 1987, but there is little evidence of such a relationship in the precrash period. In the postcrash period, we also find evidence that the prime rate of interest affects daily correlations between futures returns. Furthermore, we find that conditional correlations between currency futures and other markets decline steeply a few months before the crash and revert to normal dynamics after the crash. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:1059,1082, 2002 [source] | ||||||||||||||||||||||