This paper uses the foreign information transmission (FIT) model of Ibrahim and Brzeszczynski [Inter-regional and region-specific transmission of international stock market returns: The role of foreign information. Journal of International Money and Finance 28, no. 2: 322–43] to quantify the incremental benefits of foreign overnight international stock market information over domestic market momentum information. The main objective is to answer the question: how much more (or less) returns will a day trader earn by using various combinations of different interpretations of foreign news signals and domestic market momentum than the latter alone? Trading strategies are constructed with added features that take advantage of better modelling of changes over time in the return equivalent of the meteor shower of Engle, Ito, and Lin [Meteor showers or heat waves? Heteroscedastic intra-daily volatility in the foreign exchange market. Econometrica 58, no. 3: 525–42]. The results show that overnight international information is more economically beneficial than previous-day's domestic information. Moreover, better modelling of the time variation in the impact of this overnight information has substantial benefits to stock market investors.
- meteor shower
- information transmission
- Kalman filter
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- School of Social Sciences, Edinburgh Business School - Associate Professor
- School of Social Sciences - Associate Professor
- Research Centres and Themes, Energy Academy - Associate Professor
- Research Centres and Themes, Centre for Finance & Investment - Associate Professor
- Research Centres and Themes, The Spatial Economics and Econometrics Centre - Associate Professor
Person: Academic (Research & Teaching)