Pynnonen, Seppo, Johan Knif, and Martti Luoma (1996). A new look at the volatility information flows between stock markets; A case of two Nordic stock exchanges. Journal of International Financial Markets, Institutions & Money 6, No. 2/3, 69--92.

Abstract. Resent studies on the transference of volatility shocks between equity markets mainly utilize time domain approaches for the analysis of lead-lag structures. The present paper presents and applies a cross-spectral approach for the analysis and mapping of second order information flow in stock prices, i.e., volatility shock transference. An ARMA-GARCH model is applied to the estimation of the autoregressive structure in the return series. The squared residuals are then used in the analysis of volatility spill over between the Helsinki Stock Exchange and the Stockholm Stock Exchange. The univariate results suggest that the markets have common time lags in volatility shocks and that this lag has become shorter in the course of time. The bivariate results indicate that the lead-lag structure in volatility spill over is highly dependent on the time period studied.