ECONOMIC-NEWS AND EQUITY MARKET LINKAGES BETWEEN THE US AND UK

The source of equity market linkages between the U.S. and U.K. is investigated by focusing on intraday price movements of stock index futures contracts. We document heightened U.K. return volatility at 11:30 a.m. and 1:30 p.m. GMT, which corresponds to regular macroeconomic releases in the U.K. and U.S., respectively. The response of U.K. equities in the half-hour surrounding the U.S. announcements is significant and similar to price movements for U.S. equities to the same announcements. These results support the hypothesis that the documented international equity market linkages are attributable to reactions of foreign traders to public information originating from the U.S.