The international transmission of information in Eurodollar futures markets: A continuously trading market hypothesis

This paper studies the transmission of information in three Eurodollar futures markets, the IMM, SIMEX and LIFFE. The results show that relevant information is revealed during the trading hours of the IMM and LIFFE, but not the SIMEX. The interest rates of the three markets are cointegrated with a single common stochastic trend. Granger-causality runs from the market that is placed in the last trading order within 24 hours in the vector error correction model and this causal relationship is shorter than one day. An approach of variance decomposition and impulse response functions exploring the common factor in the cointegration system is employed. Analogous to the causality results, the common factor is driven by the last trading market in the 24-hour trading sequence. Specifically, each market, while it is trading, impounds all the information and rides on the common stochastic trend. The overall results suggest that these three markets can be considered one continuously trading market. (JEL G15, C32). Copyright (C) 1996 Elsevier Science Ltd