Edith Cowan University, Research Online, Perth, Western Australia
Abstract
This study covers considerable ground and touches on a range of issues in a rigorous investigation of the intraday and end-of-day behaviour of I JK stock index and interest rate futures contracts. Firstly, the paper uses S-minute data in an initial examination of the response of the Short Sterling, Long Gilt and FTSEI00 to the release of macroeconomic announcements (assisted with the application of GMM). Secondly, in an analysis of intraday patterns in returns and volatility a GARCII(I,I) framework is employed, so that further inferences are made robust to time-varying variance. Finally, the paper draws upon some of the latest innovations in time series econometric modeling in an attempt to identify the extent to which the Short Sterling, Long Gilt and FTSE I 00 exhibit co-movement. The study finds evidence suggesting investors and portfolio managers distinguish between the information content of different items of news. The results also suggest some consistency of response to news in the interest rate and stock markets. The GARCH estimation shows variance to be highly dependent on past variance and volatility. Although the three variables appear to be bound by two cointegrating relationships, the tests for lead/lag relationships and relative degrees of exogeneity produced mixed results. In sum, the results should prove intuitively appealing
