Advances in Risk Management

306 VOLATILITY TRANSMISSION PATTERNS BETWEEN THE USA AND SPAIN

200

0

01/18/0007/18/0001/18/0107/18/0101/18/0207/18/0201/18/0307/18/0301/18/0407/18/0401/18/05

400

600

800

1,000

1,200

1,400

1,600

1,800

S&P500 Price Index

IBEX35 Price Index IBEX35 Returns

S&P500 Returns

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

01/18/0007/18/0001/18/0107/18/0101/18/0207/18/0201/18/0307/18/0301/18/0407/18/0401/18/05

0,02


0,03

01/18/0007/18/0001/18/0107/18/0101/18/0207/18/0201/18/0307/18/0301/18/0

4

07/18/0401/18/05

0,01

0,02

0,01

0,03

0,04

0

0,02


0,03

01/18/0007/18/0001/18/0107/18/0101/18/0207/18/0201/18/0307/18/0301/18/0

4

07/18/0401/18/05

0,01

0,02

0,01

0,03

0,04

0

Figure 16.1Price indexes and returns

Stock Exchange starts at 9:00 and finishes at 17:35 Spanish time. The New
York Stock Exchange trades from 9:30 to 16:00 US eastern standard time
(15:30 to 22:00 Spanish time). Apart from a few days when these countries
change to the summer daylight saving time and again later to the winter
time, the overlapping trading hours correspond to Spanish time 15:30 to
17:35. We use stock market prices recorded at 16:00 Spanish time in order
to avoid the use of index prices near the open (USA) and close (Spain) of
trading.
The data is extracted from Visual Chart Group (www.visualchart.com)
for the period 18 January 2000 to 11 April 2005.^3 When there are no common
trading days due to holidays in one of the markets, the index values recorded
on the previous day are used. Figure 16.1 displays the daily evolution of the
indexes and their returns in the studied period.
Table 16.1 presents some summary statistics on the daily returns, which
are defined as log differences of index values. The Jarque–Bera test rejects
normality of the returns for both countries. This is caused mainly by the
excess kurtosis, suggesting that any model for equity returns should accom-
modate this characteristic of equity returns. The ARCH test reveals that