Interaction Between the London and New York Stock Markets During Common Trading Hours

This paper examines the spill-overs in both returns and volatility between the London and New York stock markets during overlapping trading hours. Using high-frequency data for the FTSE 100 and S&P 500 stock index futures, we estimate the seasonal patterns in volatility using the Flexible Fourier Form specification of Gallant (1981). For both markets, volatility is estimated to be higher in the morning and late afternoon, as compared to the rest of the day. The estimated seasonals are used to adjust the returns before conducting the lead-lag analysis. The results indicate that both markets influence each other, although the impact of the US on the UK is clearly stronger.