The Cross-Market Information Content of Stock and Bond Order Flow

Transcription

1 The Coss-Mke Infomion Conen Sok n Bon Oe Flow Shne Unewoo Rie Univesiy Ooe 24 In his ppe I fin song eviene h ggege oe flow in he U.S. equiy n Tesuy mkes n help o explin euns in he ohe mke, even fe onolling fo own-mke oe flow. The ieion n mgniue he oss-mke oe flow-eun elion vies hough ime, n is ele o mesue equiy mke uneiny. The esuls inie h ing iviy in one mke n ggege infomion ou eonomy-wie fos h is elevn fo vluing seuiies in nohe mke. Key wos: Coss-mke; Oe flow, Mke miosuue JEL lssifiion: G4; G9 Aess oesponene o Jones Gue Shool Mngemen MS 3, P.O. Box 2932, Houson, TX ; phone: ; fx: ; emil: shneu@ie.eu. Fo helpful ommens, I m geful o Ken Kvjez, Mihel Bn, Fnk Dieol, Don Keim, Cig MKinly, Pik Sns, n semin piipns Whon, he Seuiies n Exhnge Commission, Rie Univesiy, n Tulne Univesiy. Finnil suppo fom Mogn Snley n he NASDAQ Euionl Founion is gely ppeie.

2 I's soks, soks, soks si Chis Rupkey, senio finnil eonomis Bnk Tokyo/Misuishi. No me wh eonomi ome ou, people jus hve ll eyes on he sok mke. I will e nohe fusing week o e euse o guess he ieion fixe-inome, you hve o know whee soks e going o e. - Reues News, Ooe, 22. Inouion Wihin single mke, i is well known h oe flow my onvey infomion ou he vlue speifi sse. Fo exmple, uy oe in speifi sok my le mke piipns o evise upw hei eliefs onening he vlue he sok. The sme hols ue in he Tesuy mke, lhough possily fo iffeen esons. Lile enion hs een pi, howeve, o he infomion onen oe flow oss mkes. The linkges eween he sok n on mkes e vey song, sine mny invesos follow segies in whih hey jus hei lloions o ons n soks hough ime. In iion, s he quoe ove mkes le, insiuionl es in one mke en losely wh ing iviy in he ohe mke. These links poin o one quesion h hs no een esse o his poin in he sok-on lieue: oes oe flow in one mke onvey infomion ou sse vlues in he ohe mke? In his ppe I invesige whehe equiy mke oe flow onveys infomion ou on mke euns, s well s whehe on mke oe flow onveys infomion ou equiy mke euns. Thee is lge oy heoeil n empiil lieue poving h he infomion in sok es les o pie hnges in he equiy mke. The exisene in he See Bgeho (97), Kus n Soll (972), Kyle (98), Esley n O H (987), Hsouk (99), e. 2

3 mke pive infomion ou fuue sh flows les o he infomiveness es in iniviul soks. In he Tesuy mke, howeve, i is le h no iniviul o insiuion hs ee infomion onening he (nominl) pyf iskless on. Ye Bn n Kvjez (24), Geen (24), n Fleming (2) ll show h, s in he equiy mke, oe flow oes explin euns in he Tesuy mke vious inevls. Why shoul oe flow e infomive ou he vlue seuiy when i onins no infomion ou he eminl pyf he seuiy? The key is in expning one's efiniion pive infomion eyon simply knowlege fuue sh flows o inlue ny infomion h is no known y ll piipns in he mke. Fo exmple, infomion ou n inveso's iues n eliefs is evele hough his ing segy. As his infomion is no pulily known pio o his e, i flls wihin his expne efiniion pive infomion. When ing is ggege oss ll mke piipns, his ing iviy evels impon infomion onening he inveso populion in genel. Evns n Lyons (22) show in simulneous e moel ineele foeign exhnge ing h shifs in mke-wie emn fo uenies ue o hnging isk pefeenes o enowmens n le o hnges in exhnge es; hus, oe flow in he ueny mke n explin euns even hough hee is no symmei infomion onening he pyfs iniviul uenies. 2 Lyons (2) povies simple exmple h gives inuiion fo why his is he se. Consie wo peio ing moel, in whih ing kes ple ime n ime, n he liquiion vlue he seuiy is elize ime wo. The pies whih ing ous e P n P, n he liquiion vlue is V. 2 S (2) lso uils sequenil e moel h poues simil impliions in ems he infomion onen oe flow. 3

4 Thus he vlue ime is P E(V)/(), whee is he peio isoun e. The noml view pive infomion onens infomion ou V, whih is lely elevn fo he pies P n P sine i ffes he E(V) em. Howeve, hee my lso e infomion h oes no onen V, u h is sill elevn in eemining P n P. Fo exmple, oe flow my evel infomion ou he ggege isk pefeenes n enowmens es in he eonomy. Sine hese e impon in eemining isoun es, hey e lso useful in eemining he ineim pies P n P. One one expns he onep pive infomion in oe flow o inlue h esie in he pgph ove, hee is eson o elieve h oe flow in one mke my onvey impon infomion ou eonomy-wie fos h is elevn fo vluing seuiies in nohe mke. Fo exmple, Evns n Lyons (22) expn hei single ueny moel o inlue muliple uenies n show h oe flow in one ueny my help o explin euns in nohe ueny. The veo pie hnges in hei moel fom one peio o he nex is given y P R ΛX, whee R epesens he flow pulily ville moeonomi infomion h ous in he peio, X is he veo ineele oe flows in he peio, n he mix Λ is mulivie vesion he pie imp vile fom Kyle's (98) moel. Evns n Lyons show h s long s usome oe flow oss uenies is oele, Λ is non-igonl n oe flow hs oss-mke eun impliions. In oe o ommoe eonomy-wie shifs in emn fo ein uenies, eles mus ke ino oun e in ohe uenies s well in seing pies. The uhos fin song empiil eviene h oe flows in some uenies, espeilly he Gemn mk n Jpnese yen, hve vey signifin oss-mke effes. Fo exmple, in egessions ily Swiss Fn euns on Swiss Fn oe flow, he oeffiien esime 4

5 fo oe flow is posiive n sisilly signifin, u he juse R 2 is ully negive. When oe flows fom eigh ohe uenies e e o he egession, he juse R 2 ineses o 7%. 3 In his ppe I es fo simil elion eween he sok n on mkes. Hee gin, shifs in emn in one mke my signl mkewie hnges in isk vesion, welh levels, o genel eliefs h will ffe he ineim vlues sses in he ohe mke. Alenively, hese shifs in emn my no neessily signl hnges in hese heisis; he, he shifs my simply e impon euse es e unein ou hese heisis. Regless whee he uneiny lies, he eision y invesos o move funs in n ou mkes is n impon signl h shoul help esolve he uneiny. The esuls show h oss-mke oe flow is inee infomive ou iny sok n on euns in some peios. I fis exmine hee one-monh peios wih isinly iffeen levels equiy mke uneiny, s inie y he CBOE s Voliliy inex (VIX). Common fos oe flow in oh he equiy n Tesuy mke e signifinly ele o euns iniviul seuiies in he ohe mke, even fe onolling fo oe flow in hose seuiies. The sengh n ieion his elion vies oss he hee peios; he low n meium voliliy peios e ssoie wih posiive oss-mke elion, while he high voliliy peio is ssoie wih negive oss-mke elion. When fuues euns n ommon fos own-mke oe flow e e o he speifiion, i ppes h equiy oe flow plys elively lge oss- 3 Dnielsson, Pyne, n Luo (22) lso fin simil empiil eviene in he foeign exhnge mke eging he impone oe flow oss mkes.

6 mke ole hn oes on oe flow. I hen povie esuls showing h he one-monh supeio esuls hol in genel oss he enie smple peio. Sevel een ppes h exmine he sok-on elion e losely ele o mine. Connolly, Sives, n Sun (23) show h he oelion eween ily euns on soks n ons vies susnilly ove he peio. 4 They lso fin h his viion is ele o he genel level uneiny in he equiy mke; ys low uneiny e ssoie wih posiive sok-on eun oelion ove he following monh, while ys high uneiny e moe likely o e ssoie wih negive oelion. Fleming, Kiy, n Osiek (998) oumen infomionl linkges eween he sok, on, n money mkes using ily fuues euns. An Choi, Sk, n Suhmnym (23) show h innovions o i-sk spes in he sok n on mkes e oele uing he 99's. They link his viion in mio liquiiy o viion in mo liquiiy hough money poliy n muul fun flows. I oniue o his lieue y exmining he impone oe flow in his elion oss mkes. I show h oe flow hs imevying oss-mke imps, n h his ime viion seems o e ele o mo level uneiny in he eonomy. The esuls inie h inese mke-wie uneiny my le o gee elevne fo oe flow in oss-mke fmewok. The esuls lso povie empiil eviene h oss-mke heging, s isusse y Connolly, Sives n Sun (23) n Fleming, Kiy, n Osiek (998), is pesen in ein peios. This ppe is lso ele o een wok y Aneson, Bolleslev, Dieol, n Veg (24) n Boy, Jggnhn, n Hu (24), oh whih oumen sok mke 4 See lso Li (22) fo moe on he ime-vying oelion sok n on euns. 6

7 eion o news h iffes epening on he se he eonomy. They inepe his s esul he ompeing sh flow n isoun e effes in vluing equiies. My esuls hve simil inepeions, in h he ehvio es in he finnil mkes hs iffeen impliions epening on mkewie uneiny ou eonomi sengh. Finlly, his ppe uils on he wok Hsouk n Seppi (2) eging ommon fos in oe flow. Hsouk n Seppi show h he fis pinipl omponen oe flow in he Dow 3 soks hs inemenl powe in helping o explin euns iniviul soks. In his ppe I show h he infomion onine in ggege equiy oe flow is no only elevn wihin he sok mke, u in he fixe inome mke s well. The emine he ppe is s follows: Seion 2 esies he equiy n Tesuy mke use in he suy. Seion 3 fomlizes he eonomei ppoh use. The esuls e shown in Seion 4, n Seion onins onluing emks. 2. D 2.. Sok D Fo he equiy mke nlysis I inlue he omponens he Dow Jones Inusil Avege fom Jnuy, 993 o Augus 3, 2. The sing e is hosen o e Jnuy 993 ue o he sing e he NYSE TAQ se. I en he smple in Augus 2 ue o n ineupion in my vesion he GovPX se h poin in ime. I fous on he 3 Dow soks euse hey e vey ively e n e less likely o e ffee y es wih fim-speifi pive infomion hn e smlle fims. Ting in hese soks is likely o efle genel shifs in invesos'pofolios in ggege. Suh shifs e likely o 7

8 e mos elevn in oss-mke fmewok suh s he one I exmine. The ompnies mking up he Dow Jones Inex hve n vege mke pilizion $4.8 Billion n in sum epesen ppoximely 2% he ol mke pilizion U.S. soks. As suh, hei ing iviy seves well o ppoxime ggege sok mke iviy. I pefom he esimion on monh-y-monh sis, n fo eh monh I inlue ll 3 Dow Jones omponens. Thee wee sevel hnges o he inex uing he 99's, n ompnies e elimine fom he smple fo given monh if hey wee e o o elee fom he inex in h monh. The 38 ol ompnies use in he suy e lise in he Appenix, long wih he es in whih hey e inlue in he suy. Fo eh iniviul sok in he smple, ll es n quoes fom he NYSE TAQ se e ollee fo he enie peio. One he is ollee, I iniilly pefom seies heks o emove ny eoneous fom he smple.. If eihe he i o sk pie fo given quoe is equl o zeo, h osevion is emove fom he smple. 2. If he quoe o e ous efoe 9:3 m o fe 4: pm, he osevion is emove. 3. If he solue spe fo given osevion is gee hn $ pe she, he osevion is emove. 4. Fo he e, ll osevions e emove in whih he e pie is moe (less) hn. (.) imes he ls e pie. Fo eh sok, I hen ivie eh ing y ino one minue inevls. The eun ove n inevl is lule using he mipoin he ls quoe in eh one minue peio. Dow Jones Inusils Avege fshee, 24. 8

9 Nex, he ne oe flow is ompue fo eh inevl. To lule ne oe flow, es e fis signe s uye o selle iniie using he Lee n Rey (99) lgoihm. I hen lule ne oe flow in oll ems y suing ne sell volume (in olls) fom ne uy volume. Ne oe flow is lso lule using he ne nume es. The ne e esuls, howeve, e quliively simil o he ne oll volume esuls, n s suh e omie fom he ppe. Fo ousness in eemining he oss mke infomionl effes on mke oe flow, I lso mke use he eun on he ney Sn & Poo's fuues on fom he Chigo Menile Exhnge. Hung n Soll (994), Hsouk (996), n Hsouk (23) ll show h he S&P fuues seve s n impon soue pie isovey fo he equiy mke. Thus he eun on he on seves s useful enhmk in helping o eemine he impone oss-mke oe flow effes fom he on mke Bon D The fo he U.S. Tesuy mke is oine fom he GovPX se. GovPX minins ik-y-ik ing fo ll ineele iviy involving five he op six ineele okes. Fom GovPX I ein ll ing fo on-he-un Tesuy seuiies fo he enie smple. On-he-un inies h seuiy is newly uione n is he mos eenly issue seuiy in given muiy lss. On-he-un Tesuies e vey ively e n he mke is exemely liqui. This hoie seuiies will e useful in looking fo oe flow effes ele o mke-wie fos, sine hey e less likely o e 6 I hnk Ry Fi fo poviing he S&P fuues on his wesie, hp://fimoel.eon.yle.eu. 9

10 ffee y noisy ing hn moe sesone Tesuies. Seuiies use in he smple e he hee monh, six monh, n one ye ills; wo, hee, five, n en ye noes; n he 3 ye on. 7 Alhough GovPX epos smll n eesing fion ing in he 3 ye on, i is inlue hee fo he ske ompleeness. 8 Fo eh on-he-un Tesuy seuiy, I olle he sme infomion s ws ollee fo equiies: he eun ove he one minue inevl, n he ne oe flow s mesue y he ne oll volume. Of noe hee is he f h es o no hve o e signe fo ons s ws one wih equiies. The GovPX se lely inies whehe eh e is hi (sell) o ke (uy). Befoe luling he eun n ne oe flow mesues, he is heke fo eoneous osevions y pefoming seies seens:. If eihe quoe i pie o sk pie is equl o zeo, he osevion is emove fom he smple. 2. If e pie is gee hn 2, he e osevion is emove fom he smple. 3. If he quoe eph is gee hn unis (equl o $ illion), he osevion is emove. Suh lge eph figues e likely o e unelile. 4. Finlly, ll es n quoes eoe pio o 9:3.m. o fe 4: p.m. e emove fom he smple. 7 The hee ye noe is inlue hough July 998. The ls quely uion he hee ye noe uing he peio oue in My 998, hus i ese eing noml on-he-un noe uing Augus h ye. 8 Cno Fizgel, he only mjo ineele oke whih oes no piipe in GovPX, is ominn in he long en he yiel uve.

11 The ls seen menione is wohy fuhe isussion in h hee e no se ing hous fo U.S. Tesuy seuiies. Howeve, Fleming (997) epos h 9% ing volume in he U.S. Tesuy mke ous uing he hous 7:3.m. n : p.m. Given my gol exmining he elion eween iny on n sok mke iviy, I hoose o limi he suy o iviy ouing eween 9:3.m. n 4: p.m, he hous ing on he NYSE. To elimine osevions spnning he ovenigh peio n voi ompliions eling o he opening ing on he NYSE, I op he fis minues ing (9:3-9:4) fom he nlysis. Finlly, ll osevions e elimine whih ou when he on mke is lose u he sok mke is open. Suh insnes ou on ein holiys (suh s Columus Dy), s well s fe 2: p.m. on he y efoe holiys. The finl smple gives ime seies eun n oe flow mesues fo he Dow Jones Inusil Avege soks n he on-he-un Tesuies fo Jnuy 993 hough Augus 2. To hek he ousness ny onlusions me onening he oss-mke infomionl effes sok oe flow on on euns, I lso mke use he eun on he elevn Tesuy fuues on whih is e on he Chigo Bo Te. Sine he fuues pis e n impon soue pie isovey, inluing hese euns in he nlysis will help us mke songe semens eging ny oss-mke effes h flow fom soks o ons Mehoology 9 Fo nlysis involving he on fuues ll ing fe 3: p.m. is oppe fom he smple.

12 I follow he mehoology Hsouk (99), s expne y Chn, Chung, n Fong (22) n Tookes (23), in moeling he elion eween sok n on es n quoe evisions. Hsouk (99) poposes ivie veo uoegession (VAR) es n quoes fo iniviul soks o mesue he infomion onen ing: x p p, i 2, i p p, i x 2, i x ε, ε 2, () Whee is he quoe-mipoin eun ove he inevl sine he ls nsion n x is he signe volume he e ouing. Noe h his seup vies slighly fom iionl VAR in h he onemponeous oe flow is llowe o ene he eun equion. This is se on he ssumpion h onemponeous usliy uns fom es o quoes, n is well goune in heoeil moels suh s Kyle (98). Chn, Chung, n Fong (22) n Tookes (23) expn his seup o nlyze he elion mong muliple seuiies. Fo exmple, Chn, Chung, n Fong (22) use his fmewok o guge he infomion onen sok n opion ing wih sysem equions inluing oh euns n oe flows fo lls, pus, n he unelying sok. I use simil seup inluing euns n oe flows fo single seuiy, n ommon fos euns n oe flows fom he ohe mke. Fo exmple, he sysem elow will e use o es fo he elevne ommon fo equiy oe flow in explining euns in he five ye Tesuy noe. 2

13 y, y, equiy, equiy, p p p, i y, p 2, i y, 3, i y, p 4, i y,, i y, p 2, i y, p 3, i y, p 4, i y, p p, i equiy, p p 2, i equiy, 3, i equiy, p 4, i equiy, p, i p p 2, i equiy, 3, i 4, i equiy, equiy, ε, ε equiy, ε 2, 3, ε 4, (2) Hee y is he eun on he five ye Tesuy noe, y is he oe flow in he five ye noe, equiy is he fis pinipl omponen euns fo he 3 Dow soks, n equiy is he fis pinipl omponen oe flow fo he 3 Dow soks. As in Chn, Chung, n Fong (22), I use len ime ppoh he hn he nsion ime ppoh Hsouk (99). Using lok inevls he hn nsion ime filies he ompison euns n oe flows oss mkes. One e possile onen in he seup is he ssume ineion oe flows n euns, in whih oe flows onemponeously ffe euns u euns e no llowe o ffe oe flow in he sme mnne. Hsouk (99) fins eviene feek ing in equiies, whee oe flow ppes o espon o ps euns. In oe o llevie he onen h euns oul e iving oe flows wihin peio ime, I hoose one minue inevls fo he VAR nlysis. While hee is sill he possiiliy h es use pie-epenen segies suh fequenies, he likelihoo is smll. The hoie one-minue inevl gives suffiien levels ing iviy while keeping he poenil issues ssoie wih feek ing o minimum. In eh equion I inlue he onemponeous vlue (fo oe flows only) n he fis five lgs ll explnoy viles. The esuls e insensiive o ing iionl lgs. 3

14 Of ouse, he possiiliy emins h ny oss-mke infomionl effe foun my simply pue some omie vile whih is ele o ing wihin he sse's mke. To help onol fo his possiiliy, fo eh peio I lso esime eh VAR speifiion wih iionl enhmk viles. In esing he oss-mke impone equiy oe flow, fo exmple, euns on he elevn Tesuy fuues ons e inlue in he VAR long wih he ley menione viles. In iion, I inlue long wih he on's own oe flow he fis pinipl omponen on mke oe flow. A simil ousness hek is use in evluing he oss-mke infomionl onen on mke oe flows fo sok euns. Hee I use euns on he ney Sn n Poo's Inex fuues ons. As wih he on fuues, he S&P fuues e n impon soue pie isovey n e useful in esing fo he ue oss-mke impone on mke oe flows. I lso inlue he fis pinipl omponen equiy oe flow long wih he own-seuiy oe flow s in he exmple ove. Hsouk n Seppi (2) show h he fis pinipl omponen oe flow is useful in helping o explin iny euns on Dow soks. 4. Resuls Pevious lieue (see Connolly, Sives, n Sun (23)) ells us h he elion eween ily sok n on euns vies hough ime. In peios elively high sok mke uneiny (he uhos use he CBOE VIX inex s poxy), he oelion eween soks n ons is moe likely o e negive. In peios lowe uneiny, he oelion eween sok n on euns is muh moe likely o e posiive. I fis onfim See lso Li (22). 4

15 h he esuls hese uhos fin on ily level hol when euns e exmine on minue-y-minue sis. Monhly oelions eween he fis pinipl omponens sok n on euns e esime fo he enie peio Jnuy 993 o Augus 2. Fig. shows he ime seies hese monhly oelions. The plo onfims h he oelion eween iny euns oss mkes oes vy signifinly ove ime, wih he oelion peominnly posiive in he fis hlf he smple n mosly negive in he le p he smple. This is in line wih he egimes foun y Connolly, Sives, n Sun. I now esime he VAR moels fom he pevious seion on monh-y-monh sis fo he enie smple peio. Fo eviy, I only pesen in-eph esimion esuls fo hee one monh peios; he ovell monh-y-monh esuls will e isusse following he supeio esuls. The hoie supeios fo in eph nlysis is se on he genel level uneiny in he sok mke. Given he Connolly, Sives, n Sun esuls, I hoose hee one-monh peios se on he vege level he VIX inex uing he monh. Fig. 2 shows he ime seies monhly osevions fo he VIX inex fom Jnuy 993 hough Augus 2. Implie voliliy ws lely muh lowe in he fis hlf he smple efoe inesing in le yes. The lge spikes in le 997 n 998 oinie wih he Asin isis n he Russin e isis. The fis one-monh peio I hoose is Deeme 993, uing whih he vege VIX level ehe is minimum ou %. The seon peio hosen is Augus 998, when he mximum VIX 39% oue. I lso hoose Noveme 996 s monh in whih VIX ws oun 9%, o ppoximely he vege oss ll he monhs in he smple. This gives n oppouniy o oseve he ynmis he sok-on

16 oe flow-eun elion in hee peios wih isinly iffeen levels genel uneiny. I egin y showing summy sisis onening euns, oe flows, n vege ing iviy in he sok n on mkes uing he hee supeios. Tle shows mens n sn eviions euns, ne oe flows, nume es, n nume quoe upes fo eh iniviul Tesuy n he vege oss ll soks in he smple. A ouple ineesing pens emege in he. Fo he equiies, hee is genel upw en in ing iviy oss he hee supeios. Ting iviy pe one-minue inevl, oh in ems he nume es n he nume quoe upes, moe hn oule eween Deeme 993 n Augus 998. The pen is less le fo Tesuies, lhough i is le h he wo, five, n en ye noes e he mos ive seuiies in ems ing n quoing fequeny. In genel, ll he seuiies e ively e, wih evey seuiy hving les.88 quoe upes pe minue. In oe o onisely pesen esuls, I will fous on he impone oss-mke oe flow fo one sok n one Tesuy seuiy. Resuls e quniively simil fo mos ohe seuiies, wih he exepion some Tesuies. The seuiies hosen e Genel Elei n he five ye Tesuy noe. These e he wo mos fequenly e seuiies in eh mke smple n povie epesenive piue he nue he oss-mke elion. 4.. Supeio Resuls 4... Deeme 993 As menione elie, I hoose Deeme 993 s low voliliy supeio. The esuls hee will show peio in whih invesos in ggege hve elively low levels 6

17 uneiny, les s mesue y he VIX inex. Tle 2 shows esuls fom he VAR whih ess fo he oss-mke impone equiy oe flow. 2 This VAR inlues he eun (in sis poins) on he five-ye Tesuy noe, oe flow (in millions olls) in he five ye noe, he fis pinipl omponen euns in he 3 Dow soks, n he fis pinipl omponen ne oe flow in he Dow soks. Esimion is one using equiony-equion oiny les sques. Some genel feues he esuls e eily ppen. Fis, euns on he five-ye Tesuy exhii song negive uooelion. Also, s one woul expe, uen oe flow in he five-ye is songly posiively ele o euns on h seuiy. The signifine he fis lg oe flow my inie lgge pie jusmen o he infomion in oe flow. Also, oe flow in oh he five-ye Tesuy n he equiy ommon fo isply fi moun pesisene. The esuls mos inees in his suy e onine in he ls ows he fis olumn, whih is he olumn epesening he equion fo five ye noe euns. Lgge equiy euns lely show no elion wih he Tesuy eun, u he onuen equiy oe flow shows up wih posiive n signifin elion. In Tle 3, he ieion inees is evese. Now I sk he quesion whehe ggege on mke oe flow helps o explin he euns on iniviul soks. As menione elie, I will fous on Genel Elei s epesenive sok. This VAR inlues he eun (in sis poins) on GE sok, oe flow (in housns olls) in GE sok, he fis pinipl omponen euns in on-he-un Tesuies, n he fis pinipl omponen ne oe flow in he on-he-un Tesuies. The genel esuls e simil o 2 In his n he following les, pmee esimes e only isplye up o he hi lg in oe o onseve spe. 7

18 hose in Tle 2, exep h he when we onsie he ggege on mke eun (s oppose o he eun on he five-ye noe), i is now posiively ele o is lgge vlue. Of mos inees hee is he lk ole fo oss-mke oe flow. Aggege on mke oe flow shows no signifin elion o he eun on Genel Elei sok. Thus he esuls fo his peio low uneiny e mixe; equiy oe flow is signifinly ele o on euns, while on oe flow oes no ppe o e ele o he eun GE sok Noveme 996 Noveme 996 is hosen s epesenive monh ue o is vege level uneiny. As menione elie, he vege losing level he VIX inex uing he monh ws jus ove 9%. This is ppoximely equl o he men n mein he monhly VIX veges ove he smple peio. Tle 4 shows he esimion esuls fom he seline VAR fo five-ye noe euns fo he monh Noveme 996. The esuls e simil o hose fom Deeme 993, wih few nole exepions. Fis, ggege equiy euns e now highly pesisen. Mos imponly, hough, hee now seems o e muh songe ole fo oss-mke infomionl effes. Thee is signifin posiive elion eween five-ye noe euns n lgge equiy euns. Thee is lso signifin posiive elion eween onemponeous equiy oe flow n five-ye noe euns. The esuls fo Genel Elei in Tle e simil in nue. GE euns e posiively ele o lgge on mke euns, n e lso posiively ele o onuen on mke oe flow. Thee is lso some eviene negive elion eween lgge on flows n GE euns, lhough he size he oeffiien is smll elive o h fo he onemponeous oe flow. 8

19 Thus f he esuls fo he wo supeios inie h he sengh he ossmke elion vies oss ime peios. In peio low voliliy o uneiny suh s Deeme 993, hee is some eviene oe flow in he equiy mke hving powe o explin euns in he on mke. In moe vege peio suh s Noveme 996, howeve, hee is gee eviene n infomionl ole fo oe flow in oss-mke sense. I now un o peio ge eonomi uneiny o eemine if he elion is even songe in suh ime Augus 998 Augus 998 winesse he Russin e eful n ge el genel umoil in wol finnil mkes. The monh ws one ge uneiny s eflee y he highes monhly VIX vege in he smple ove 39%. As suh, i povies nul envionmen fo esing whehe he oss-mke impone oe flows ineses in peios gee uneiny onening eonomi funmenls. Tle 6 egins y showing he VAR pmee esimes fo five-ye Tesuy noe euns. The mos ineesing esuls hee lie in he impone he oss-mke oe ems. Fis, lgge euns on he equiy ommon fo e signifinly ele o five-ye noe euns. In iion, onemponeous equiy oe flow is songly ele o Tesuy euns. The ieion hese elions is quie iffeen fom he elie supeios. While he ieion ws posiive in 993 n 996, i is now eiely negive. The esuls in Tle 7 fo Genel Elei sok e simil in nue. GE euns e negively ele o lgge on euns. Thee is lso he sme negive elion eween on oe flows n GE euns, lhough he oeffiien on he fis lg is now signifinly 9

20 posiive. Tken ogehe, hese esuls poin o signifin ole fo oss-mke oe flow in ems is iliy o explin euns Rousness The supeio esuls oseve hus f inie h oe flow oss he sok n on mkes oes help o explin iniviul seuiy euns. Howeve, he possiiliy emins h he infomion onine in oss-mke oe flow is ley pue y viles moe losely ele o ing in he seuiy inees. To exmine his, I expn he VAR sysem use elie o inlue ommon fos own-mke oe flow s well s he elevn fuues euns. Fo exmple, he sysem in equion (2) now eomes y, y, equiy, equiy, fuues, on,, i y, 2, i y, 3, i y, 4, i y,, i y, 6, i y,, i y, 2, i y, 3, i y, 4, i y,, i y, 6, i y,, i equiy, 2, i equiy, 3, i equiy, 4, i equiy,, i equiy, 6, i equiy,, i 2, i equiy, 3, i 4, i, i 6, i equiy, equiy, equiy, equiy, equiy, e, i fuues, e, i 2, i fuues, e 3, i fuues, 4, i fuues, e, i fuues, e e 6, i fuues, f f on, 2, i f 3, i f 4, i, i f f 6, i on, on, ε, on, on, on, ε ε 2, 3, ε ε ε 4,, 6, (3) Whee fuues epesens he eun on he five-ye fuues on fom he CBOT n on epesens he fis pinipl omponen on mke oe flow. 3 The esuls he expne nlysis e shown in Tle 8. Coeffiien esimes e only shown fo he oss-mke oe flow em. Pnel A shows esuls fo Genel Elei sok. The oeffiien fo onemponeous on mke oe flow in Deeme 993 is 3 The sysem use fo Genel Elei sok is simil, exep h S&P fuues euns n ommon fo equiy oe flow e use. 2

21 one gin insignifin, s in Tle 3. Thee is now only mginl signifine fo he sme oeffiien esime in Noveme 996, wih -sisi.93 ompe o 3.47 in he seline sysem. An while he esime fo Augus 998 oninues o e mginlly signifin n negive, i is ineesing o noe he song posiive signifine he esimes fo lgge on oe flow. Pnel B shows esuls fo he five ye noe. In he 993 n 996 supeios, he onemponeous equiy oe flow emins signifin he % level. An in Augus 998, he onemponeous equiy oe flow is sill signifin he one peen level. Tken ogehe, he esuls inie h he oss-mke ole equiy oe flow is moe ous o he inlusion fuues euns n ommon fos oe flow. Aggege oe flow in he 3 Dow soks oninues o ply signifin ole in explining euns on he five-ye Tesuy noe Disussion Resuls The esuls fo he hee supeios pesene povie snpsho he impone oe flow in oss-mke sense. The mjo esuls e:. Oe flow in he sok n on mkes oes seve o ggege infomion ou mke-wie fos h ffes he vluion iniviul seuiies. 2. In genel, equiy oe flow is moe infomive ou iniviul on euns hn on oe flow is ou iniviul sok euns, les in ems sisil signifine he VAR pmee esimes. This esul is espeilly ue fe he inlusion fuues euns n ommon fos own-mke oe flow. 3. The impone he oss-mke oe flow em vies hough ime, n his viion is ele o genel levels uneiny in he equiy mke s mesue y VIX. Moeove, he ieion he oss-mke elion lso vies oss 2

22 peios, wih posiive elion holing in moe lm peios n negive elion holing in moe volile peios. Wih eg o he esul #, some lifiion is in oe. My esuls o no neessily imply h es in given mke e ully oseving oe flow in he ohe mke on minue-y-minue sis n uping hei eliefs se on his. I is highly unlikely h Tesuy e is ully oseving he es h ou in he Dow soks iny. Howeve, he my hve ess o infomion whih is iniive oe flow in he ohe mke. Fo exmple, ommuniion wih his fim s equiy ing esk my give him n iniion wh he fim s oe ook looks like fo soks. So while he ossmke oe flow my no e infomive in he sense ypil miosuue moel whee mke mkes iely oseve oe flow, i is infomive in h mke piipns my oseve some poxy fo i. The seon esul peins o he oss-mke impone equiy oe flow vs. on oe flow. I fin h in ll hee peios pesene equiy oe flow plys signifin ole in explining five-ye noe euns. This is ous o he inlusion on fuues euns n he on oe flow ommon fo. Howeve, eviene h Tesuy oe flow helps in explining euns fo Genel Elei sok is wekene in he pesene S&P fuues euns n he equiy oe flow ommon fo. Sevel fos e likely wok hee. Fis, he euns on iniviul soks e muh moe likely o e ffee y iiosyni fos hn e ons. The esuls monhly pinipl omponens nlysis fo one minue on n sok euns (no shown) inie h he fis pinipl omponen sok euns explins, on vege, ou five o en peen he viion in Dow sok euns. The fis pinipl omponen on euns, howeve, ypilly explins ou 22

23 3% he viion in euns. This implies h vile onining ggege infomion is muh moe likely o e elevn in vluing Tesuy seuiy hn n iniviul sok. If his is he se, hen n ggege eun mesue fo he sok mke shoul e moe losely ele o on mke oe flow hn he eun on n iniviul sok. In iion, when fuues euns e e o he speifiions, i is moe likely h he S&P fuues e quikly inopoing he infomion h is in on oe flow. Bon fuues, on he ohe hn, e possily ffee y iiosyni fos suh s hepes-oelive issues n so my leve moe oom fo equiy oe flow o hve song explnoy powe. As menione ove, i my e he se h iniviul equiies e less ele o he oss-mke oe flow euse hei euns e moe iiosyni. To exmine his possiiliy, Tle 9 shows VAR esuls whee he iniviul seuiy viles e emove n eple wih ommon fos. Th is, he five viles in he VAR e now he fis pinipl omponens equiy euns, equiy oe flow, on euns, on oe flow, n he given fuues euns. The esuls inie h on mke oe flow is muh moe infomive fo ggege equiy euns, les in he ls wo supeios, hn i is in he GE eun egessions. In oh ses he oeffiien on onemponeous oe flow is signifin he one peen level. Thus he esuls o inie h on mke oe flow hs gee oss-mke infomion onen fo sok pofolio hn fo iniviul soks. I now un o he hi esul onening he viion hough ime in he impone he oss-mke oe flow ems. I fin h in peios gee uneiny (s mesue y he level he CBOE VIX inex), oe flow hs gee infomion onen oss mkes, les in ems signifine he VAR oeffiien esimes. Fom 23

24 heoeil snpoin, his is in line wih he peiions moels suh s Kyle (98). In Kyle's moel, is inesing in he uneiny onening he eminl vlue he sse. In he pesen senio, he impone ggege oss-mke oe flow is inesing in he uneiny suouning he mo-level fos suh s isk pefeenes n enowmens. While he hee supeios sugges h he esuls follow his genel pen, I now povie eviene h he sme pen hols houghou he enie smple n oss seuiies. Tle pesens he ime seies oelion eween he VIX level fo given monh n he sum he VAR oeffiiens whih mesue he impone ossmke oe flow in explining seuiy euns. This sum is given y, i fom he VAR sysem given in (2). In mos ses, hee is song n sisilly signifin negive oelion eween he vege VIX level n he sum he oeffiien esimes fo ossmke oe flow. Th is, s he level uneiny in he equiy mke ises, ossmke oe flow is moe negively ele o iniviul seuiy euns. Fo ons, he esul only hols fo he wo, five, n en ye noes. Fo equiies, howeve, he esul hols fo ll he soks, wih ll u wo exhiiing oelion whih is signifin he % level. The iffeene oss Tesuies is n ineesing one. As menione elie, he wo, five, n en ye noes e he mos fequenly quoe n e Tesuies. The inese sensiiviy o equiy mke uneiny my e ele o hei highe volume, n possily hei eing omine y iffeen goup es hn ohe Tesuies. Anohe ele explnion is h hese Tesuy seuiies she speil link wih he equiy mke. Given h he vege uion he Lehmn Bohes ggege on inex is eween fou n five yes, i is likely h money flowing ino n ou he on mke will hve 24

25 he songes effe on his e he yiel uve (he songes negive oelions e fo he wo n five ye noes). Why oes he ieion he elion eween oss-mke oe flow n euns hnge hough ime? One likely explnion is h in elively lm peios (heize y low o moee VIX levels) money flowing ino (ou ) one mke inies inese levels money flowing ino (ou ) mkes in genel. A he sme ime, hee is lile uneiny ou ggege isk vesion, so oe flow nsmis elively lile infomion ou his heisi. Consie, howeve, peio muh highe ggege uneiny suh s Augus 998 n susequen monhs. Hee oe flow in he equiy mke my onin muh moe infomion ou he level isk invesos e willing o ke on, o ou hei ssessmen he iskiness soks. Money flowing ou he equiy mke inies invesos e leving isky sses, pesumly o ple hese funs in sfe Tesuy seuiies. Noe h his gumen oes no neessily ely on invesos mking minue-ominue pofolio elning eisions. I only epens on he ssumpion h invesos in genel e mking hese ypes eisions on egul sis. In ggege, his ehvio will hen show up in iny ing iviy.. Conlusions My esuls give song eviene h iny oe flow in seuiies mke n onin infomion h is vlule in ems explining euns in nohe mke. Using mulivie VAR wih oe flows n euns fom he sok n on mkes, I fin h ggege oe flow in he equiy mke plys signifin ole in explining iniviul Tesuy euns. Moeove, his esul is ous o he inlusion fuues mke euns in 2

26 he VAR speifiion. In iion, I fin eviene h in some peios Tesuy oe flow oes povie infomion h helps o explin iniviul sok euns. Howeve, when he eun on he ney S&P fuues on is e o he VAR sysem, i ppes h mos he oss-mke oe flow infomion is pue y he fuues eun seies. These finings hve impon impliions in ems ou unesning he infomion in ing iviy. Reen eseh suh s Hsouk n Seppi (2) hs foun h ggege equiy oe flow is infomive ou he euns on iniviul soks. My ppe shows h his infomion in ggege flows my e elevn oss seuiies mkes. Clely, he oss-mke oe flow in he sok-on seing shoul no e infomive in ems he nominl pyf n iniviul sse. Howeve, i my onin vlule infomion ou he inees e h is use o isoun he fuue sh flows n sse. Alhough i s level omplexiy o heoeil n empiil moels, o ignoe he impone ing in nohe mke is o ignoe vlule piee infomion onening his isoun e. 26

27 Appenix A.: Dow Jones Inusils Componens use in smple Symol Nme Begin De En De AA Alo //993 8/3/2 ALD Allie Signl //993 /3/999 AXP Amein Expess //993 8/3/2 BA Boeing //993 8/3/2 CAT Cepill //993 8/3/2 DD Dupon //993 8/3/2 DIS Disney //993 8/3/2 EK Esmn Kok //993 8/3/2 GE Genel Elei //993 8/3/2 GM Genel Moos //993 8/3/2 IBM Inenionl Business Mhines //993 8/3/2 IP Inenionl Ppe //993 8/3/2 JPM JP Mogn //993 8/3/2 KO Co-Col //993 8/3/2 MCD MDonl's //993 8/3/2 MMM Minneso Mining n Mnufuing //993 8/3/2 MO Philip Mois //993 8/3/2 MRK Mek //993 8/3/2 PG Poe n Gmle //993 8/3/2 T AT&T //993 8/3/2 UTX Unie Tehnologies //993 8/3/2 GT Gooye //993 /3/999 S Ses //993 /3/999 CHV Chevon //993 /3/999 UK Union Cie //993 /3/999 XON Exxon //993 /3/999 Z Woolwoh's //993 2/28/997 WX Wesinghouse //993 2/28/997 BS Behlehem Seel //993 2/28/997 TX Texo //993 2/28/997 TRV Tveles 4//997 9/3/998 HWP Hewle Pk 4//997 8/3/2 JNJ Johnson & Johnson 4//997 8/3/2 WMT Wl-M 4//997 8/3/2 CCI Ciigoup //998 /3/998 C Ciiop 2//998 8/3/2 XOM Exxon Moil 2//999 8/3/2 HON Honeywell 2//999 8/3/2 27

28 Refeenes Aneson, T., Bolleslev, T., Dieol, F., Veg, C., 24. Rel ime pie isovey in sok, on, n foeign exhnge mkes. Unpulishe woking ppe. Univesiy Pennsylvni. Bgeho, W., 97. The only gme in own. Finnil Anlyss Jounl 27, 3-7. Boy, J., Hu, J., Jgnnhn, R., 24. The sok mke s eion o unemploymen news: why news is usully goo fo soks. Jounl Finne, fohoming. Bn, M., Kvjez, K., 24. Pie Disovey in he U.S. Tesuy Mke: The imp oeflow n liquiiy on he yiel uve. Jounl Finne, fohoming. Chn, K., Chung, Y., Fong, W., 22. The infomionl ole sok n opion volume. Review Finnil Suies, Choi, T., Sk, A., Suhmnym, A., 23. An empiil nlysis sok n on mke liquiiy. Review Finnil Suies, fohoming. Connolly, R., Sives, C., Sun, L., 23. Sok implie voliliy, sok unove, n he sok-on eun elion. Jounl Finnil n Quniive Anlysis, fohoming. Dnielsson, J., Pyne, R., Luo, J., 22. Exhnge e eeminion n ine-mke oe flow effes. Unpulishe woking ppe. Lonon Shool Eonomis. Esley, D., O'H, M., 987. Pie, e size, n infomion in seuiies mkes. Jounl Finnil Eonomis 9, Evns, M., Lyons, R., 22. Oeflow n exhnge e ynmis. Jounl Poliil Eonomy, 7-8. Evns, M., Lyons, R. 22. Infomionl inegion n FX ing, Jounl Inenionl Money n Finne 2,

29 Fleming, J., Kiy, C., Osiek, B., 998. Infomion n voliliy linkges in he sok, on, n money mkes. Jounl Finnil Eonomis 49, -37. Fleming, M., 997. The oun-he-lok mke fo U.S. Tesuy seuiies. Eonomi Poliy Review Fleming, M., 2. Mesuing Tesuy mke liquiiy. Feel Reseve Bnk New Yok Sff Repos. Geen, C., 23. Eonomi news n he imp ing on on pies. Jounl Finne 9, Hsouk, J., 99. Mesuing he infomion onen sokes. Jounl Finne 46, Hsouk, J., 996. Oe heisis n sok pie evoluion: n ppliion \inen o pogm ing. Jounl Finnil Eonomis 4, Hsouk, J., 23. Iny pie fomion in U.S. equiy mke, fohoming, Jounl Finne. Hsouk, J., Seppi, D., 2. Common fos in pies, oe flows, n liquiiy. Jounl Finnil Eonomis 9, Hung, R., Soll, H., 994. Mke miosuue n sok eun peiions. Review Finnil Suies 7, Kus, A., Soll, H., 972. Pie imps lok ing on he New Yok Sok Exhnge. Jounl Finne 27, Kyle, A. S., 98. Coninuous uions n insie ing. Eonomei 3, Lee, C., Rey, M., 99. Infeing e ieion fom iny. Jounl Finne 46,

30 Li, L., 22. Moeonomi fos n he oelion sok n on euns. Unpulishe woking ppe. Yle Univesiy. Lyons, R., 2. The Miosuue Appoh o Exhnge Res. MIT Pess, Cmige, Msshuses. S, G., 2. Inveso uneiny n oe flow infomion. Unpulishe woking ppe. New Yok Univesiy. Tookes, H. 23. Infomion, ing n pou mke ineions: oss-seionl impliions insie ing. Unpulishe woking ppe. Conell Univesiy. 3

31 Tle : Summy Sisis This le pesens mens n sn eviions (in ilis) fo euns, ne oe flow, he nume es, n he nume quoe evisions fo one minue inevls in he hee supeios Deeme 993, Noveme 996, n Augus 998. Reuns e in sis poins, n ne oe flow is in housns olls. Nume Quoe Revisions Reuns (Bsis poins) Ne Oe Flow ($, s) Nume Tes 2/93 /96 8/98 2/93 /96 8/98 2/93 /96 8/98 2/93 /96 8/98 3 monh monh ye ye ye ye ye ye Avg Sok

32 Tle 2. This le pesens OLS pmee esimes he following VAR speifiion whih is esime fo he monh Deeme 993: y, y, equiy,, i y, 2, i y, 3, i y,, i y, 2, i y, 3, i y,, i equiy, 2, i equiy, 3, i equiy,, i 2, i equiy, 3, i equiy, equiy, equiy, 4, i y, 4, i y, 4, i equiy, 4, i equiy, 4, y is he log quoe mipoin eun fo he -ye Tesuy noe ove he ls minue, y ε, ε ε 2, 3, ε is he ne oe flow (in millions olls) in he -ye noe, equiy is he fis pinipl omponen euns fo he 3 Dow soks, n equiy is he fis pinipl omponen ne oe flow fo he 3 Dow soks. To onseve spe, esimes fo lgs 4 n e no shown. *(**)[***] inies sisil signifine he % (%)[%] level. Depenen Viles Explnoy Viles y, y, equiy, equiy, -.***.2*** y, ***..46** -.26 y, ** -.**.48** -.36* y, *** -.4 y, ***.78*** y, *.7 y, ***..2 y, equiy, *** equiy, ***.9 equiy, **.6 equiy, *** equiy, equiy, * equiy, Ajuse R

33 Tle 3. This le pesens OLS pmee esimes he following VAR speifiion whih is esime fo he monh Deeme 993: GE, GE, on,, i GE, 2, i GE, 3, i GE,, i GE, 2, i GE, 3, i GE,, i on, 2, i on, 3, i on,, i 2, i 3, i on, on, on, on, 4, i GE, 4, i GE, 4, i on, 4, i on, 4, GE is he log quoe mipoin eun fo Genel Elei sok ove he ls minue, GE ε, ε ε 2, 3, ε is he ne oe flow (in housns olls) in GE sok, on is he fis pinipl omponen euns fo he on-heun Tesuies, n on is he fis pinipl omponen ne oe flow fo he on-he-un Tesuies. To onseve spe, esimes fo lgs 4 n e no shown. *(**)[***] inies sisil signifine he % (%)[%] level. Depenen Viles Explnoy Viles GE, GE, on, on, -.348***..3.2 GE, *** GE, * GE, *** -.3 GE, ***.3.2. GE, * GE, GE, ***.8*** on, *.36*** on, * *** on, *** on, ***.36*** on, **.42*** on, ***.7 on, Ajuse R

34 Tle 4. This le pesens OLS pmee esimes he following VAR speifiion whih is esime fo he monh Noveme 996: y, y, equiy,, i y, 2, i y, 3, i y,, i y, 2, i y, 3, i y,, i equiy, 2, i equiy, 3, i equiy,, i 2, i equiy, 3, i equiy, equiy, equiy, 4, i y, 4, i y, 4, i equiy, 4, i equiy, 4, y is he log quoe mipoin eun fo he -ye Tesuy noe ove he ls minue, y ε, ε ε 2, 3, ε is he ne oe flow (in millions olls) in he -ye noe, equiy is he fis pinipl omponen euns fo he 3 Dow soks, n equiy is he fis pinipl omponen ne oe flow fo he 3 Dow soks. To onseve spe, esimes fo lgs 4 n e no shown. *(**)[***] inies sisil signifine he % (%)[%] level. Depenen Viles Explnoy Viles y, y, equiy, equiy, -.63***.4***.86***.73*** y, *** y, * y, ***.9*** y, ***.***..7 y, *** y, y, equiy,.36***.6***.96***.4*** ***.63*** equiy, ** equiy, ***.24*** equiy, ***.72*** equiy, **.48*** equiy, * *** equiy, Ajuse R

35 Tle. This le pesens OLS pmee esimes he following VAR speifiion whih is esime fo he monh Noveme 996: GE, GE, on,, i GE, 2, i GE, 3, i GE,, i GE, 2, i GE, 3, i GE,, i on, 2, i on, 3, i on,, i 2, i 3, i on, on, on, on, 4, i GE, 4, i GE, 4, i on, 4, i on, 4, GE is he log quoe mipoin eun fo Genel Elei sok ove he ls minue, GE ε, ε ε 2, 3, ε is he ne oe flow (in housns olls) in GE sok, on is he fis pinipl omponen euns fo he on-heun Tesuies, n on is he fis pinipl omponen ne oe flow fo he on-he-un Tesuies. To onseve spe, esimes fo lgs 4 n e no shown. *(**)[***] inies sisil signifine he % (%)[%] level. Depenen Viles Explnoy Viles GE, GE, on, on, -.***.32.4**.7*** GE, ** GE, ** -.8.3**. GE, ***. GE, *** GE, GE, GE, ***.2.2.2*** on, on, on, ***.89*** on, ** *** on, **.2* on, on, Ajuse R

36 Tle 6. This le pesens OLS pmee esimes he following VAR speifiion whih is esime fo he monh Augus 998: y, y, equiy,, i y, 2, i y, 3, i y,, i y, 2, i y, 3, i y,, i equiy, 2, i equiy, 3, i equiy,, i 2, i equiy, 3, i equiy, equiy, equiy, 4, i y, 4, i y, 4, i equiy, 4, i equiy, 4, y is he log quoe mipoin eun fo he -ye Tesuy noe ove he ls minue, y ε, ε ε 2, 3, ε is he ne oe flow (in millions olls) in he -ye noe, equiy is he fis pinipl omponen euns fo he 3 Dow soks, n equiy is he fis pinipl omponen ne oe flow fo he 3 Dow soks. To onseve spe, esimes fo lgs 4 n e no shown. *(**)[***] inies sisil signifine he % (%)[%] level. Depenen Viles Explnoy Viles y, y, equiy, equiy, -.2**.626* -.9*** -.72*** y, * y, y, *** -.26*** y, **.72***.7*.2 y, ** y, y, equiy, -.8*** -2.92***.86***.329*** * ***.2*** equiy, *** * -.6 equiy, ***.3*** equiy, **.2*** equiy, **.36*** equiy, ***.28** equiy, Ajuse R

37 Tle 7. This le pesens OLS pmee esimes he following VAR speifiion whih is esime fo he monh Augus 998: GE, GE, on,, i GE, 2, i GE, 3, i GE,, i GE, 2, i GE, 3, i GE,, i on, 2, i on, 3, i on,, i 2, i 3, i on, on, on, on, 4, i GE, 4, i GE, 4, i on, 4, i on, 4, GE is he log quoe mipoin eun fo Genel Elei sok ove he ls minue, GE ε, ε ε 2, 3, ε is he ne oe flow (in housns olls) in GE sok, on is he fis pinipl omponen euns fo he on-heun Tesuies, n on is he fis pinipl omponen ne oe flow fo he on-he-un Tesuies. To onseve spe, esimes fo lgs 4 n e no shown. *(**)[***] inies sisil signifine he % (%)[%] level. Depenen Viles Explnoy Viles GE, GE, on, on, -.9***.9*** -.9*** -.8*** GE, *** -.*** -.6*** GE, ** -.2* -.3** GE, *** -.7*** GE, ***.6*** -.3*** -.4 GE, GE, ***. -. GE, *** -.96***.8***.66*** on, * ***. on, * -. on, ***.438*** on, *** ***.7*** on, * ***.27** on, * on, Ajuse R

38 Tle 8. This le pesens OLS pmee esimes he following VAR speifiion whih is esime fo Deeme 993, Noveme 996, n Augus 998: is, is, m, m, fuues,, i is, 3, i is, 2, i is, 4, i is,, i is,, i is, 2, i is, 3, i is, 4, i is,, i is,, i m, 2, i m, 3, i m, 4, i m,, i m,, i 3, i 2, i m, 4, i m,, i m, m, m, e, i fuues, e e 3, i fuues, 2, i fuues, e 4, i fuues, e ε, ε ε, i fuues, whee is is he log quoe mipoin eun fo n iniviul seuiy (eihe he five ye noe o Genel Elei sok) ove he ls minue, is is he ne oe flow in h seuiy, m is he fis pinipl omponen euns fom he ohe mke, m is he fis pinipl omponen ne oe flow fom he ohe mke, n fuues is he eun on he elevn fuues on fo he given mke. To onseve spe, esimes fo lgs 4 n e no shown, n only esimes fo he oss-mke oe flow ems e pesene. *(**)[***] inies sisil signifine he % (%)[%] level. Pnel A: Genel Elei euns Explnoy Vile Deeme 993 Noveme 996 Augus * -.26* on, *.432*** on, ** on, on, Pnel B: Five ye noe euns.**.** -.82*** equiy, equiy, equiy, 2 equiy, 3 2, 3, ε 4, ε * , 38

39 Tle 9. This le pesens OLS pmee esimes he following VAR speifiion whih is esime fo Deeme 993, Noveme 996, n Augus 998: equiy, equiy, on,, i equiy, 2, i equiy, 3, i equiy,, i equiy, 2, i equiy, 3, i equiy,, i on, 2, i on, 3, i on,, i 3, i 2, i on, on, on, ε ε, ε 3, ε on, 4, i equiy, 4, i equiy, 4, i on, 4, i on, 4, equiy is he fis pinipl omponen euns fo he 3 Dow soks, equiy 2, is he fis pinipl omponen ne oe flow fo he 3 Dow soks, on is he fis pinipl omponen euns fo he on-he-un Tesuies, n on is he fis pinipl omponen ne oe flow fo he on-he-un Tesuies. To onseve spe, esimes fo lgs 4 n e no shown, n only esimes fo he ossmke oe flow ems e pesene. *(**)[***] inies sisil signifine he % (%)[%] level. Pnel A Explnoy Depenen Vile: Common fo equiy euns Viles Deeme 993 Noveme 996 Augus *** -.6*** on, ** on, ** -.2. on, on, 3 Pnel B equiy, equiy, equiy, 2 equiy, 3.2** Depenen Vile: Common fo on euns *** -.2*** **.22** * *.3**

40 Tle. This le shows Peson Coelion oeffiiens fo ll he iniviul seuiies ppeing houghou he smple n he CBOE Voliliy Inex (VIX). The viles use e he sum he veo uoegession pmee esimes whih mesue he impone oss-mke oe flow in explining seuiy euns, n he vege level he VIX inex. Viles e esime on monhly sis fo he Jnuy 993 hough Augus 2 peio. P-vlues fo esing he null hypohesis h he oelion is zeo e shown in ilis. 3 monh 6 monh ye 2 ye ye ye 3 ye AA AXP BA CAT DIS EK GE <. <.. <. <.. <. GM IBM IP KO MCD MMM MO <. <..9 <.. <.. MRK PG T UTX DD <. <. <. <. 4

41 Fig. : Monhly Sok-Bon Reun Coelions, Jnuy 993-Augus 2 This figue pesens he monhly oelion eween he fis pinipl omponen one-minue equiy euns (se on he 3 Dow soks) n he fis pinipl omponen one-minue Tesuy euns (se on he on-he-un Tesuies). The pinipl omponens nlysis is one on monh-y-monh sis fo he peio Jnuy 993 hough Augus 2. Coel i on / / 93 / / 94 / / 9 / / 96 / / 97 / / 98 / / 99 / / / / Fig. 2: CBOE Voliliy Inex (VIX), Jnuy 993-Augus 2 This figue shows he monhly vege level he CBOE Voliliy Inex fom Jnuy 993 hough Augus 2. Monhly veges e lule y veging he losing VIX oss ll ys in given monh. vi x / / 93 / / 94 / / 9 / / 96 / / 97 / / 98 / / 99 / / / / 4