Hadad, El oi
A icle
Does ading mechanism shape c oss-ma ke in eg a ion?
E idence om s ocks and co po a e bonds on he Tel A i
S ock Exchange
Jou nal o Economics, Finance and Adminis a i e Science
P o ided in Coope a ion wi h:
Uni e sidad ESAN, Lima
Sugges ed Ci a ion: Hadad, El oi (2025) : Does ading mechanism shape c oss-ma ke in eg a ion?
E idence om s ocks and co po a e bonds on he Tel A i S ock Exchange, Jou nal o Economics,
Finance and Adminis a i e Science, ISSN 2218-0648, Eme ald Publishing Limi ed, Leeds, Vol. 30,
Iss. 59, pp. 169-188,
h ps://doi.o g/10.1108/JEFAS-11-2023-0262
This Ve sion is a ailable a :
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Does ading mechanism shape
c oss-ma ke in eg a ion? E idence
om s ocks and co po a e bonds
on he Tel A i S ock Exchange
El oi Hadad
Depa men o Indus ial Enginee ing and Managemen ,
Shamoon College o Enginee ing, Bee -She a, Is ael
Abs ac
Pu pose –This s udy in es iga es he in luence o ading mechanisms on c oss-ma ke in eg a ion be ween s ocks
and co po a e bonds on he Tel A i S ock Exchange (TASE) du ing he COVID-19 c isis. Unlike he wo ldwide
p ac ice o ading co po a e bonds on an o e - he-coun e (OTC) ma ke , TASE uses a limi -o de -book (LOB) o
bo h s ocks and bonds, po en ially c ea ing unique ola ili y dynamics h ough di ec in o ma ion spillo e . We
analyze he ola ili y dynamics and spillo e e ec s be ween TASE’s s ock and co po a e bond ma ke s.
Design/me hodology/app oach –We employ an exponen ial gene al au o eg essi e condi ional
he e oskedas ic (EGARCH)(1,1) model o assess he impac o s ock ma ke ea , measu ed by implied
ola ili y, on Tel-Bond 20 Index e u ns and ola ili y. A bi a ia e diagonal Baba-Engle-K a -K one (BEKK)
model is also applied o cap u e ime-se ies in eg a ion and c oss- ola ili y spillo e s be ween he TA-35 Index
(s ocks) and he Tel-Bond 20 Index (co po a e bonds), especially du ing inancial s ess.
Findings –The EGARCH model e eals a signi ican con agion e ec , wi h inc eased s ock ma ke ea
lowe ing co po a e bond e u ns and inc easing bond ola ili y. I also indica es a le e age e ec ,whe e nega i e
shocks disp opo iona ely ampli y bond ola ili y. Diagonal BEKK esul s con i m s ong c oss-ma ke
ola ili y pe sis ence, especially du ing c ises, highligh ing subs an ial inancial con agion be ween s ocks and
bonds in TASE. While TASE’s ma ke design imp o es he o e all ma ke quali y, hese indings unde sco e he
LOB ading mechanism in acili a ing inancial con agion and sys emic isk.
P ac ical implica ions –The LOB ading in TASE acili a es di ec in o ma ion low, in ensi ying ola ili y
spillo e and c oss-ma ke in eg a ion, wi h he deg ee o in eg a ion luc ua ing based on ma ke condi ions.
In es o s and manage s should conside al e na i e hedging s a egies du ing ola ile pe iods, as s ock ma ke
sen imen signi ican ly impac s bond s abili y. Regula o s should assess how ading mechanisms a ec ma ke
in eg a ion and isk, especially du ing pe iods o dis ess.
O iginali y/ alue –This s udy o e s new insigh s in o how ading mechanisms in luence c oss-ma ke
dynamics, con ibu ing o he li e a u e on ma ke design and inancial con agion.
Keywo ds Co po a e bonds, S ocks, C oss-ma ke in eg a ion, T ading mechanism, Condi ional ola ili y
Pape ype Resea ch pape
1. In oduc ion
Fi ms use capi al ma ke s o inance hei business ac i i y ia he issuance o equi y o
co po a e deb . Since bo h equi y and co po a e bonds a e claims on he same asse , hei
Jou nal o
Economics,
Finance and
Adminis a i e
Science
169
JEL Classi ica ion — G12, G14, G15
© El oi Hadad. Published in Jou nal o Economics, Finance and Adminis a i e Science. Published
by Eme ald Publishing Limi ed. This a icle is published unde he C ea i e Commons A ibu ion
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I am g a e ul o Shmuel Hause , he Ono Academic College and Bizpo al.co.il o g an ing me he
oppo uni y o access and s udy hei unique sen imen indexes. Financial aid by he Ono Resea ch Fund is
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The cu en issue and ull ex a chi e o his jou nal is a ailable on Eme ald Insigh a :
h ps://www.eme ald.com/insigh /2077-1886.h m
Recei ed 3 Decembe 2023
Re ised 28 No embe 2024
Accep ed 28 No embe 2024
Jou nal o Economics, Finance and
Adminis a i e Science
Vol. 30 No. 59, 2025
pp. 169-188
Eme ald Publishing Limi ed
e-ISSN: 2218-0648
p-ISSN: 2077-1886
DOI 10.1108/JEFAS-11-2023-0262
expec ed e u ns should be associa ed wi h a ional p icing in liquid and ic ionless ma ke s.
In a pe ec ly liquid and a ional ma ke , equi y and co po a e bonds should ha e linked
expec ed e u ns, as hey bo h ep esen claims on he same asse , as no ed by Me on (1974).
Howe e , his c oss-ma ke linkage migh be al e ed in imes o c isis and gene ally change
o e ime, esul ing om changes in mac oeconomic condi ions o in es o sen imen
(Campbell e al., 2020).
I equi y and co po a e bond ma ke s exhibi in eg a ion, isk p emia in one ma ke should
in luence he o he , and he ela i e magni ude o e u n p emia o s ocks should align wi h
hose o con ingen bond e u ns p emia (Choi and Kim, 2018). Financial li e a u e suppo s
his iew o in eg a ion, indica ing ha s ock-bond co ela ions can a y be ween posi i e and
nega i e alues, e lec ing shi s in he isk- e u n adeo o e ime.
The isk- e u n adeo be ween s ocks and co po a e bonds, as no ed by Choi and Kim
(2018), is less documen ed and o en examined in isola ion wi hin ei he equi y o deb ma ke s,
p ima ily in he USA. This gap is su p ising gi en he signi ican inc ease in deb inancing and
inc eased co po a e bond ading olume, especially pos - inancial c isis (Ab aham e al., 2021;
Bai e al., 2019;G aham e al., 2015). Gebha d e al. (2005) sugges ha spillo e e ec s may
a ise when in es o s in one ma ke (e.g. co po a e bonds) unde eac o in o ma ion om
ano he ma ke (e.g. s ocks). Examining he co-mo emen s o p ice ola ili y be ween s ock
and co po a e bond ma ke s is c ucial, as co po a e bond e u ns ola ili y is no jus d i en by
di e en isk cha ac e is ics (i.e. downside isk, c edi isk and liquidi y isk) bu can also be
a ec ed by in o ma ional ic ions, leading o ola ili y spillo e e ec s.
Recen s udies highligh posi i e in e empo al ela ionships be ween s ock and co po a e
bond ma ke s, including momen um spillo e om he USA s ocks o bonds (Choi and Kim,
2018;Downing e al., 2009;Gebha d e al., 2005;Gu un e al., 2016;Haesen e al., 2017;
Hong e al., 2012) and c oss-sec ional e idence be ween he USA s ocks and co po a e bonds
o he same i ms (Angine and Yildizhan, 2018; an Zunde and D iessen, 2022). Choi and
Kim (2018) u he highligh ha in eg a ion be ween he USA equi ies and co po a e bonds
weakens wi h noisie in es o demand, unde sco ing he ole o in o ma ion asymme y and
in es o beha io . No ably, an Zunde and D iessen (2022) ind s onge c oss-sec ional
co ela ions be ween he USA equi ies and non-in es men -g ade bonds han wi h in es men -
g ade bonds, sugges ing a di e en isk- e u n adeo and po en ial misp icing. Simila ly,
Bali e al. (2021) obse ed misp icing be ween he USA s ocks and co po a e bonds, wi h
economic unce ain y p emia a ying acco ding o he e ogeneous isk-a e sion le els in hese
ma ke s. They a ibu e hese di e ences o clien ele beha io , no ing ha ins i u ional
in es o s domina e he USA co po a e bond ma ke , while e ail in es o s a e mo e ac i e in
equi y ma ke s (Bajo e al., 2013).
Re ail and ins i u ional in es o s di e signi ican ly in in o ma ion e iciency, wi h
ins i u ional in es o s possessing g ea e esou ces and skills o p ocessing ma ke da a
(Boula o e al., 2013;Hende sho e al., 2015). Ins i u ional in es o s end o ga he i m-
speci ic in o ma ion and closely moni o managemen ac i i ies (Bajo e al., 2013), exhibi ing
di e en isk p e e ences and in es men s a egies compa ed wi h e ail in es o s (Boula o
e al., 2013;Hende sho e al., 2015). Gi en ha momen um spillo e o en s ems om ini ial
unde eac ion o in o ma ion (Ba be is e al., 1998;Hong and S ein, 1999;Wu e al., 2023),
his he e ogenei y in in o ma ion p ocessing can d i e spillo e s ac oss equi y and co po a e
bond ma ke s, in luencing c oss-asse p ice dynamics.
Mo i a ed by ecen e idence on he ime-se ies ela ionship be ween s ocks and co po a e
bonds and he po en ial impac o clien ele beha io on asse dynamics, we hypo hesize ha
inancial in eg a ion be ween s ocks and co po a e bonds is mo e p onounced in co po a e
bond ma ke s wi h high e ail in es o ac i i y. Re ail in es o s, o en less in o med and mo e
suscep ible o psychological biases and sen imen (Ba be and Odean, 2008;Kaniel e al.,
2008;Kuma and Lee, 2006), may impac ma ke dynamics signi ican ly. This aspec o
inancial in e connec edness aligns wi h ex ensi e li e a u e on inancial con agion, whe e
ma ke s exhibi heigh ened co-mo emen s ollowing a shock in one o hese ma ke s (Pa el
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e al., 2022). Ou s udy in es iga es he speci ic dynamics o in e connec edness be ween
equi y and co po a e bond ma ke s du ing and a e he COVID-19 pandemic, highligh ing
how hese ma ke s espond o ex e nal shocks and he po en ial in luence o high e ail ading
ac i i y on ma ke dynamics.
To examine inancial ma ke in eg a ion wi hin a high e ail ading en i onmen , we ocus
on ola ili y connec edness be ween s ocks and bonds on he Tel A i S ock Exchange
(TASE), whe e e ail ading is p e alen ac oss bo h ma ke s (Abudy and Shus , 2023;Abudy
and Wohl, 2018;Gu -Ge shgo en e al., 2020;Hadad and Keda -Le y, 2024). TASE’s se up
allows s ocks and bonds o ade on he same limi -o de book (LOB), which acili a es di ec
in o ma ion low and educes in o ma ion he e ogenei y be ween ins i u ional and e ail
in es o s. In con as , co po a e bonds in he USA a e aded o e - he-coun e (OTC), limi ing
e ail in es o s’ pa icipa ion due o low anspa ency and high ansac ion cos s (Edwa ds
e al., 2007). Abudy and Wohl (2018) documen ha he Is aeli co po a e bond ma ke exhibi s
highe liquidi y and na owe sp eads han he USA OTC bond ma ke , sugges ing a s onge
in e dependence and in o ma ion low be ween s ock and co po a e bond ma ke s and making
TASE an ideal con ex o s udying c oss-ma ke in eg a ion.
Ou p ima y objec i e is o analyze co-mo emen s om s ocks and co po a e bonds, o
unde s and connec edness amid heigh ened unce ain y pe iods and o explo e po en ial
ola ili y dynamics d i en by in o ma ion spillo e . To cap u e spillo e , we u ilize a uni a ia e
EGARCH model (Nelson, 1991) o Tel-Bond 20 index e u ns ( ep esen ing he bond ma ke )
and assess he impac o a change in he s ock ma ke “ ea gauge” – p oxied by he implied
ola ili y o Tel A i -35 (TA-35) Index e u ns ( ep esen ing he s ock ma ke ) – on i s e u ns
and ola ili y. Addi ionally, we employed a bi a ia e diagonal Baba-Engle-K a -K one
(BEKK) model (Engle, 2002) on he e u ns o he TA-35 and Tel-Bond 20 indices o cap u e
e u n co-mo emen and illus a e ma ke in eg a ion. Recognizing ha bond misp icing
in ensi ies du ing c ises (Ba en e al., 2018), we examined ola ili y dynamics h oughou he
COVID-19 c isis and o he pe iods o inancial dis ess om 2017 o 2022.
Ou indings e eal ha ma ke e u ns demons a e ola ili y clus e ing, pa icula ly
du ing inancial dis ess pe iods, including he COVID-19 pandemic, poli ical unce ain y and
in la ion conce ns. We iden i y a s ong con agion e ec om s ocks o bonds: as s ock ma ke
ea ises, co po a e bond e u ns all and ola ili y escala es, indica ing heigh ened isk
p emiums. The diagonal BEKK model con i ms obus in e dependencies, wi h majo news
e en s ampli ying condi ional ola ili y and co ela ions be ween s ocks and bonds. These
esul s sugges ha s ock and co po a e bond ma ke s in TASE a e economically in eg a ed,
wi h hei co-mo emen highly sensi i e o in o ma ional ic ions.
We inno a e in wo aspec s. Fi s , ou indings highligh he c i ical ole o in es o
beha io du ing inancial u moil, such as he COVID-19 pandemic, in la ion ea s and
poli ical unce ain y, in shaping co po a e bond dynamics. In es o eac ions o new
in o ma ion and heigh ened isk pe cep ions signi ican ly in luence ma ke in eg a ion,
ein o cing c oss-asse dynamics be ween s ocks and co po a e bonds (Baele e al., 2020;
Pon ajah and Ning, 2023). Secondly, while p io s udies in OTC bond ma ke s associa e
ma ke in eg a ion wi h shi s be ween con agion and ligh - o-sa e y beha io (Bau and
Lucey, 2009;Pon ajah and Ning, 2023), ou indings om TASE e eal a s ong con agion
e ec , which in ensi ies du ing heigh ened pe iods. We a ibu e hese di e ences o a ia ions
in clien ele beha io and ma ke s uc u e, whe eby TASE’s unique LOB sys em is
cha ac e ized by high e ail ading ac i i y and anspa ency (Abudy e al., 2024;Hadad
and Keda -Le y, 2024), in con as o ins i u ional in es o dominance in OTC ma ke s (Bajo
e al., 2013). Re ail in es o s, being mo e p one o sen imen -d i en beha io (Bake and
S ein, 2004;Bake and Wu gle , 2007), ampli y p ice ola ili y and con agion e ec s, as
sen imen sp eads quickly ac oss asse classes. While TASE’s ma ke design enhances he
o e all ma ke quali y (Abudy and Shus , 2023;Abudy e al., 2024), ou indings sugges ha
hese same ea u es make he ma ke highly esponsi e o sys emic shocks, emphasizing he
dual-edged impac o ading in as uc u e on ma ke quali y.
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Ou s udy has impo an implica ions o in es o s, manage s and egula o s. Fi s , ou
esul s sugges ha in es o s should conside he p ice dynamics be ween ma ke s, especially
du ing inancial u moil, o make in o med in es men decisions. Secondly, ou esul s
highligh he need o di e si ica ion and isk managemen , as co po a e bonds a e no only
d i en by di e ences in isk cha ac e is ics bu also a ec ed by in o ma ional ic ions.
Thi dly, he ole o TASE’s unique ading mechanism in shaping ma ke in eg a ion be ween
s ocks and bonds unde sco es he impo ance o unde s anding he impac o ading
mechanisms on ma ke dynamics o egula o s o ensu e ma ke s abili y.
The es o he pape is s uc u ed as ollows: Sec ion 2 p o ides a li e a u e e iew
desc ibing he heo e ical and empi ical e idence o ma ke in eg a ion be ween s ocks and
bonds and he po en ial impac o in es o sen imen on co po a e bond e u ns; Sec ion 3
desc ibes he da a and a iables; Sec ion 4 de ails he me hodology; Sec ion 6 p esen s
empi ical esul s and Sec ion 6 concludes.
2. Li e a u e e iew
Equi y and co po a e bonds a e heo e ically linked by sha ed economic undamen als, as bo h
ep esen claims on a i m’s unde lying asse s (Me on, 1974). This ela ionship sugges s ha
isk p emiums ac oss equi y and co po a e bonds should be co ela ed, gi en hei mu ual
dependence on i m-speci ic undamen als (Gebha d e al., 2005). Howe e , empi ical
e idence e eals signi ican de ia ions, pa icula ly du ing pe iods o economic c ises,
mac oeconomic shi s o changes in in es o sen imen , highligh ing he dynamic and
e ol ing na u e o c oss-ma ke in eg a ion (Campbell e al., 2020;Choi and Kim, 2018).
His o ical e idence om he USA ma ke s p o ides u he insigh s in o hese dynamics.
S udies indica e a s ong co ela ion be ween s ock and bond e u ns, sugges ing ha equi ies
o en lead bonds in e lec ing new in o ma ion (Cho dia e al., 2017;Haesen e al., 2017). Fo
ins ance, Huang e al. (2015) ind ha a decline in s ock liquidi y nega i ely a ec s he USA
bond yield sp eads, wi h s onge e ec s obse ed a e he inancial c isis. Simila ly, Chung
e al. (2019) highligh he impac o idiosync a ic s ock ola ili y on bond e u ns ia
concu en s ock p ice mo emen s. Choi and Kim (2018) emphasize ha he in eg a ion
be ween s ocks and co po a e bonds luc ua es wi h in es o sen imen , indica ing ha
sen imen plays a signi ican ole in d i ing spillo e s be ween hese ma ke s. Radi e al.
(2024) u he explo ed beha io al in luences, showing ha he ding and an i-he ding
beha io s in s ock and co po a e bond ma ke s subs an ially shape s ock-bond e u n
co ela ions.
Recen s udies u he e eal ime- a ying co ela ions be ween s ocks and bonds, which
oscilla e be ween nega i e and posi i e, depending on ma ke condi ions. Nega i e
dependence a ises when bonds, seen as sa e-ha en asse s, a ac in es o s du ing pe iods
o heigh ened isk (Baele e al., 2020;Opi z and Szimaye , 2018). This ligh - o-sa e y
beha io p omp s ealloca ions om bonds o s ocks du ing ma ke up u ns and back o bonds
du ing down u ns (Aslanidis e al., 2020;Pon ajah and Ning, 2023). Rising in e es a es also
ein o ce his nega i e dynamic by inc easing bond e u ns while educing equi y e u ns
(Pon ajah and Ning, 2023). Empi ical s udies con i m his nega i e co-mo emen du ing
c ises (Aslanidis e al., 2020;Baele e al., 2020;Connolly e al., 2005), a ibu ing hem o
ligh - o-quali y, whe e in es o s seek highe -quali y bonds o ligh - o-liquidi y, whe e
in es o s p io i ize mo e liquid asse s (Acha ya e al., 2013;Acha ya and Pede sen, 2005;
Chen e al., 2007;Dick-Nielsen e al., 2012;F iewald e al., 2012;Longs a , 2004;Næs e al.,
2011;P�
as o and S ambaugh, 2003;Tachibana, 2020). These dynamics, as no ed by Bau and
Lucey (2009), con ibu e o inancial s abili y by mi iga ing in es o losses du ing u bulen
pe iods.
Con e sely, posi i e dependence o en signals inancial con agion, eme ging a e
economic shocks when in es o s adjus posi ions ac oss bo h ma ke s o manage
heigh ened isks (Ka siampa e al., 2022). This con agion ypically s ems om sys emic
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economic isks o signi ican mac oeconomic changes ha simul aneously impac s ocks and
bonds (Be nanke and Ku ne , 2005;Boyd e al., 2005;Yang e al., 2009). Al hough ex ensi e
esea ch has documen ed con agion wi hin s ock ma ke s (Fo bes and Rigobon, 2002a;
Mo ana and Bel a i, 2008;Nguyen e al., 2022) and bond ma ke s (C onin e al., 2016;
Fo bes and Rigobon, 2002b;Leschinski and Be am, 2017;Li e al., 2022), s udies
speci ically add essing s ock-bond con agion emain limi ed (Bau and Lucey, 2009;Choi and
Kim, 2018). Recen s udies sugges ha s ock-bond in eg a ion al e na es be ween con agion
du ing down u ns and ligh - o-quali y du ing c ises, unde sco ing he sensi i i y o c oss-
asse dynamics o ma ke s ess (Baele e al., 2020;Bau and Lucey, 2009;Cappiello e al.,
2006;Pon ajah and Ning, 2023). Howe e , hese indings p edominan ly ocus on go e nmen
bonds, lea ing co po a e bond dynamics unde explo ed.
O he esea ch highligh s he ole o sen imen and i a ional beha io in bond ma ke s. Fo
example, Piazzesi (2005) shows ha Fede al Open Ma ke Commi ee announcemen s
signi ican ly a ec bond ma ke ola ili y, sugges ing unde eac ion among bond in es o s.
Nayak (2010) and Be hke e al. (2017) iden i y sen imen -d i en co-mo emen s in bond yield
sp eads and ligh - o-quali y du ing pe iods o low sen imen , while Lu e al. (2010)
demons a e ha in o ma ion unce ain y and asymme y a e p iced in o he USA co po a e
bond yield sp eads. In e na ional s udies u he co obo a e hese ends, inding ha
sen imen -d i en beha io in luences co po a e bond e u ns ac oss a ious ma ke s
(Golds ein and Namin, 2023;Li hin e al., 2023;Mukhe jee, 2019;Ra h, 2023). Howe e ,
hese s udies p edominan ly ocus on OTC co po a e bond ma ke s domina ed by ins i u ional
in es o s a he han e ail-sized pa icipan s (Bajo e al., 2013;Edwa ds e al., 2007) who a e
mo e suscep ible o sen imen -d i en beha io (B own and Cli , 2004).
In he Is aeli con ex , se e al s udies documen he signi ican ole o e ail in es o s in
enhancing ma ke liquidi y and e iciency and in con ibu ing o ma ke quali y (Abudy and
Shus , 2023;Abudy and Wohl, 2018;Abudy e al., 2024). Hadad and Keda -Le y (2024)
u he highligh he posi i e impac o e ail ac i i y on co po a e bond e u ns and ola ili y.
While hese s udies sugges ha sen imen plays a ole in shaping bond e u ns, hey do no
explo e he in o ma ion spillo e be ween equi y and co po a e bond ma ke s. Compa ed o
OTC ma ke s, whe e ins i u ional in es o s domina e, he p e alence o e ail in es o s in he
TASE could ampli y such spillo e s, as e ail pa icipan s a e mo e p one o sen imen -d i en
beha io (Bake and Wu gle , 2006,2007).
We u ilize unique da a om TASE o in es iga e hese dynamics, examining he impac o
e ail in es o ac i i y and cen alized ading in as uc u e on s ock-bond in e ac ions du ing
pe iods o heigh ened unce ain y. De ails on he da a and a iables a e p o ided in Sec ion 3.
3. Da a and a iables
Ou da ase includes daily closing p ices o he TA-35 Index and he Tel-Bond 20 Index. The
TA 35 Index consis s o 35 companies wi h he highes ma ke capi aliza ion, which
collec i ely accoun o 55% o he ading olume (TASE, 2021) and hence ep esen he
equi y ma ke . The Tel-Bond 20 Index consis s o 20 co po a e bonds wi h he highes ma ke
capi aliza ion, which cap u e mos o he ading olume (Abudy and Wohl, 2018) and hence
ep esen he deb ma ke . Daily obse a ions o he TA-35 Index and Tel-Bond 20 Index a e
publicly a ailable a h ps://www. ase.co.il/en, which is he o icial TASE websi e.
To accoun o ime- a ying ola ili y and c oss-ma ke co ela ions ac oss a ange o
inancial scena ios, we ha e chosen a sample pe iod spanning om June 5, 2017, o June 26,
2022. This ime ame co e s he pe iods be o e, du ing and a e he excep ional ma ke
u bulence igge ed by he COVID-19 c isis, p o iding a comp ehensi e iew o ma ke
eac ions du ing di e en phases o he c isis. Addi ionally, i encompasses he ola ili y
obse ed du ing he in la ion conce ns o 2022 and he pe iod ma ked by poli ical unce ain y
and ea ly elec ion specula ion in 2018.
Daily e u ns a e de ined as ollows:
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R ¼lnðP Þ�lnðP −1Þ;(1)
Whe e R is he loga i hmic p ice change and P is he daily closing p ice o he Tel-Bond 20
Index and he TA-35 Index and a ime .
Figu e 1 illus a es he p ice ends o he TA-35 Index and Tel-Bond 20 Index, showing a
gene al upwa d mo emen om June 2017 o Ma ch 2020, excep o a dip in la e 2018. Bo h
indexes d opped sha ply du ing he COVID-19 c isis in Ma ch 2020 bu ebounded simila ly
om Ap il 2020. They declined again in Q2 2022, e lec ing in la ion conce ns. These pa e ns
sugges ha he TA-35 Index and Tel-Bond 20 Index could be co ela ed. Bo h Pea son
co ela ion (0.792) and Spea man ank-o de co ela ion (0.768) a e highly signi ican ,
indica ing he exis ence o co a ia ion be ween he s ock and bond ma ke s and sugges ing
common beha io in he p ice ends o bo h s ocks and bonds.
Figu e 2 shows he p ice ends o he TA-35 Index and Tel-Bond 20 Index e u ns. The
igu e depic s a common end, wi h bo h indexes exhibi ing simila spikes in e u ns and
ola ili y o e ime. Speci ically, Figu e 2 shows ha bo h indexes expe ienced signi ican
spikes in e u ns ola ili y du ing he COVID-19 c isis pe iod, sugges ing ha he pandemic
had a signi ican impac on bo h indexes and unde sco es he in e dependence be ween he wo
indexes in imes o c isis. The igu e also depic s a common ola ili y end in e u ns in
Decembe 2018, in line wi h he ise in he poli ical unce ain y and specula ion abou ea ly
elec ions ( esul ing om he esigna ion o key go e nmen o icials), which ha e been
obse ed o in luence he TA-35 Index. Fu he , ano he ola ili y end is obse ed in Janua y
2022, in line wi h he ise in ea in he ma ke s esul ing om ea o in la ion. These esul s
sugges o possible in e connec edness be ween he wo indexes and a po en ial spillo e
1,200
1,400
1,600
1,800
2,000
17 18 19 20 21 22
Panel (a). TA-35 Index
320
340
360
380
400
17 18 19 20 21 22
Panel (b). Tel-Bond 20 Index
Sou ce(s): Au ho ’s own wo k
Figu e 1. Daily closing p ices o TA-35 and Tel-Bond 20 Indexes
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e ec be ween he equi y and deb ma ke s. These esul s sugges ha a bi a ia e GARCH can
be employed in o de o s udy he co-mo emen be ween he s ock and bond ma ke s.
Table 1 shows summa y s a is ics, uni oo es s and he e oscedas ici y es s o TA- 35 Index
and Tel-Bond 20 Index e u ns o he en i e sample. Resul s in Panel (a) show posi i e a e age
e u ns o bo h indexes, sugges ing a bullish end in s ock and bond ma ke s. The e u ns o he
TA 35 Index exhibi a nega i e skewness, while he Tel-Bond 20 Index e u ns show a posi i e
skewness, implying ha he s ock ma ke is mo e likely o obse e ou lying nega i e e u ns.
Conside ing he ola ili y, as expec ed, he TA 35 Index e u ns exhibi a much la ge s anda d
de ia ion and lowe ku osis han Tel-Bond 20 Index e u ns, sugges ing ha co po a e bond
e u ns a e mo e concen a ed abou he mean; howe e , he ku osis alues o bo h index e u ns
a e highe han h ee, indica ing ha he e u ns dis ibu ion could be a - ailed. Ja que–Be a
esul s con i m he depa u e om no mali y, while he condi ional he e oscedas ici y es
sugges s he exis ence o he au o eg essi e condi ional he e oskedas ici y (ARCH) e ec in
bo h index e u ns, implying ola ili y clus e ing in e u ns.
Panel (b) esul s show he Augmen ed Dickey–Fulle (ADF) es (Dickey and Fulle , 1981)
and Phillips–Pe on (PP) es (Pe on, 1988) o he daily e u ns o he TA-35 index and Tel-
Bond 20 index. Resul s show ha bo h ADF and PP alues a e highly signi ican , sugges ing
s a iona i y in TA-35 and Tel-Bond Index e u ns and s a iona i y in p ice le els. These esul s
sugges ha GARCH modeling is sui able o model he condi ional a iances and co a iance
o he index e u ns.
Las ly, we conside he ola ili y o he TA-35 index o quan i y how changes in in es o s’
ea in he s ock ma ke in luence he e u ns and condi ional ola ili y o he Tel-Bond 20
index. Following Hadad and Keda -Le y (2024), we use he implied ola ili y in TASE
–0.08
–0.04
0.00
0.04
0.08
17 18 19 20 21 22
Panel (a). TA-35 Index e u ns
–0.03
–0.02
–0.01
0.00
0.01
0.02
0.03
0.04
17 18 19 20 21 22
Panel (b). Tel-Bond 20 Index e u ns
Sou ce(s): Au ho ’s own wo k
Figu e 2. Daily e u ns o TA-35 and Tel-Bond 20 Indexes
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(VIXTA) indica o o cap u e s ock ma ke ola ili y, which measu es he implied ola ili y o
TA-35 index op ions. Simila o he widely used VIX indica o o S&P100 (Pi~
nei o-Chousa
e al., 2017;Whaley, 2000), he VIXTA cap u es he ea in he s ock ma ke , allowing us o
analyze he impac o he change in s ock ma ke ola ili y on co po a e bond e u ns ola ili y
o enhance ou unde s anding abou he ola ili y dynamics in TASE. Daily obse a ions o
VIXTA a e om he Bizpo al websi e (h ps://www.bizpo al.co.il/public us indices). We
calcula e he a ia ion o he VIXTA indica o as he change in a ime , namely
ΔVIXTA ¼VIXTA �VIXTA −1:(2)
4. Me hodology
To s udy inancial ma ke dynamics among s ocks and co po a e bonds in he TASE and po en ial
ola ili y dynamics and spillo e s om s ocks o co po a e bonds, we examine po en ial ola ili y
dynamics and spillo e s om s ocks o co po a e bonds by modeling he impac o changes in
VIXTA, a measu e cap u ing ma ke ea (Bake and Wu gle , 2007;Hadad and Keda -Le y,
2024;Whaley, 2000), on bond e u ns and ola ili y. This s ep is c ucial, as a signi ican impac o
changes in VIXTA on co po a e bond e u ns may e eal isk- e u n dynamics be ween equi y and
bond ma ke s, sugges ing ha s ock ma ke luc ua ions in luence isk pe cep ions in TASE’s bond
ma ke . To cap u e he ola ili y pa e ns o co po a e bond e u ns, we employ uni a ia e GARCH
models, which a e well sui ed o handling he ola ili y clus e ing commonly obse ed in
inancial ime se ies as well as he a - ailed dis ibu ion o asse e u ns.
Gi en he clus e ing and dis ibu ional cha ac e is ics o Tel-Bond 20 Index e u ns, we
es ed se e al asymme ic GARCH models, including EGARCH (Nelson, 1991),
Th eshold GARCH (TGARCH) (Zakoian, 1994) and Glos en-Jaganna han-Runkle
GARCH (GJR-GARCH) (Glos en e al., 1993), which cap u e asymme ical e ec s in
which nega i e shocks can lead o g ea e ola ili y han posi i e shocks o simila
magni ude. Following Hadad and Keda -Le y (2024), we ound EGARCH(1,1) o p o ide
he bes i , wi h he lowes Akaike In o ma ion C i e ion (AIC) and Schwa z In o ma ion
C i e ion (SIC) alues among models es ed. Model diagnos ics con i med i s sui abili y,
wi h an insigni ican au o eg essi e condi ional he e oskedas ici y lag ange mul iplie
Table 1. Summa y s a is ics and uni oo es s o TA-35 and Tel-Bond e u ns
Rs Rb
Panel (a): summa y s a is ics
Mean 0.000251 8.29E�05
Median 0.000587 0.000229
Maximum 0.070995 0.034540
Minimum �0.066993 �0.025511
S d. De 0.010548 0.003134
Skewness �0.610842 0.789193
Ku osis 10.07618 36.45240
Ja que–Be a 2672.776*** 58133.91***
ARCH(1) 0.3255*** 0.249***
Obse a ions 1,244 1,244
Panel (b): uni oo es s
ADF �35.5854*** �15.5341***
PP �35.737*** �28.1269***
No e(s): Rs: TA-35 e u ns; Rb: Tel-Bond 20 e u ns; sample ange: 5 June 2017–26 June 2022. Signi icance:
***1%; **5% and *10%
Sou ce(s): Au ho ’s own wo k
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6. Conclusions
Exis ing inancial li e a u e highligh s he impac o sen imen on s ock e u ns ola ili y,
emphasizing he ole o in es o beha io in shaping s ock ma ke dynamics. Resea ch has
also indica ed spillo e e ec s be ween s ock and bond ma ke s, sugges ing bidi ec ional
in luences be ween p ice changes in hese asse classes. Despi e s ocks and co po a e bonds
bo h ep esen ing claims on he same unde lying asse (Me on, 1974) and ha ing po en ial o
in o ma ion spillo e , beha io al s udies explo ing c oss-ma ke in eg a ion be ween hese
wo asse s emain limi ed.
This s udy o e s no el insigh s in o he linkage be ween s ocks and co po a e bonds in he
TASE, a ma ke dis inguished by high e ail ading ac i i y. Ou indings demons a e a obus
e u n and ola ili y connec edness be ween he ma ke s, cha ac e ized by ime- a ying
co ela ion. We documen ola ili y clus e ing and subs an ial in e dependencies be ween he
ma ke s, pa icula ly du ing pe iods o inancial u moil, such as he COVID-19 pandemic,
poli ical unce ain y and in la ion conce ns. Bo h s ocks and co po a e bonds show
esponsi eness o inno a ions, and he dynamic condi ional co ela ion be ween he
ma ke s is no ably s ong. Con a y o he ligh - o-sa e y beha io o en obse ed in OTC
ma ke s du ing c ises (Baele e al., 2020;Pon ajah and Ning, 2023), ou esul s poin o a
posi i e con agion e ec in TASE, whe e in e dependencies be ween s ocks and bonds
inc ease du ing u bulen imes.
These indings unde sco e signi ican ma ke in eg a ion wi hin TASE, o e ing aluable
insigh s in o he connec ion be ween s ock and co po a e bond ma ke s. Howe e , hey also
aise conce ns o in es o s, as con agion du ing c ises causes bond p ices o all alongside
s ocks, unde mining di e si ica ion bene i s when hey a e mos needed. Unlike he s abilizing
e ec o nega i e s ock-bond dynamics obse ed in o he OTC ma ke s (Bau and Lucey,
2009), he con agion obse ed in TASE exace ba es ins abili y du ing u bulen pe iods.
Ou esul s highligh he pi o al ole o TASE’s exchange-based bond ma ke and i s
cen alized ading mechanism in shaping ma ke in eg a ion. The pla o m’s di ec
in o ma ion low acili a es ola ili y spillo e s and ampli ies in e dependencies be ween
s ocks and co po a e bonds, pa icula ly du ing pe iods o inancial s ess. This pa e n aligns
wi h global e idence o ola ili y spillo e s in ma ke s wi h high e ail ading ac i i y,
highligh ing he signi ican in luence o e ail in es o s on c oss-ma ke dynamics. While
Abudy and Shus (2023) emphasize TASE’s con ibu ion o ma ke quali y h ough enhanced
liquidi y, p ice disco e y and s abili y, ou indings e eal a dual-edged na u e o his
in as uc u e. The same ea u es ha p omo e ma ke quali y also enable he apid
ansmission o shocks, lea ing TASE highly suscep ible o sys emic isk. This duali y
unde sco es how anspa ency and cen alized ading can simul aneously os e e icien
in o ma ion low and exace ba e des abilizing con agion du ing heigh ened unce ain y.
O e all, his s udy ein o ces he in e connec edness o s ock and bond ma ke s and
highligh s he c i ical ole o ading mechanisms in shaping c oss-ma ke linkages. The
indings ha e b oad implica ions o in es o s, egula o s and ma ke pa icipan s. Fo
in es o s, unde s anding hese linkages is essen ial o making in o med decisions and
de eloping e ec i e isk managemen s a egies, pa icula ly du ing ola ile pe iods. Fo
egula o s, ecognizing he dynamics o ma ke in eg a ion is essen ial o main aining inancial
s abili y and designing e ec i e policies o cen alized exchanges and OTC ma ke s
cha ac e ized by high e ail ading ac i i y.
Despi e hese insigh s, ou s udy has ce ain limi a ions. While his analysis is obus wi hin
TASE’s unique LOB ading en i onmen , he indings may no ully gene alize o OTCs wi h
di e en ading mechanisms. Fu he mo e, he s udy’s ocus on speci ic c isis pe iods –
including he COVID-19 pandemic, la e 2018 poli ical unce ain y and ea ly 2022 in la ion
conce ns – p o ides key insigh s in o ola ili y spillo e s du ing inancial s ess bu limi s he
applicabili y o he esul s o o he pe iods and con ex s.
Fu u e esea ch could explo e he in luence o mac oeconomic and mone a y condi ions
and o he beha io al ac o s in d i ing ola ili y spillo e be ween s ocks and co po a e bonds
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in he TASE and in simila ma ke s. Addi ionally, explo ing he causal pa e ns be ween s ocks
and co po a e bonds in TASE and he spillo e e ec be ween s ocks and co po a e bonds in
o he OTC ma ke s will p o ide aluable insigh s in o c oss-ma ke linkages in global ma ke s.
Such s udies would u he con ibu e o he unde s anding o he ela i e ad an ages and
d awbacks o OTC ma ke s compa ed o cen alized exchanges.
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