Do DOW returns really influence the intraday Spanish stock market behavior?

• Five hypotheses to analyze spillovers from the DOW upon the IBEX.
• Underreaction of the IBEX to the DOW returns in the first hours of trading.
• Overreaction of the IBEX to the DOW after the opening of the US market.
• Important information for building accurate asset pricing models.

Although the behavior of the Spanish stock market has been studied from many different points of view, none of the previous research has ever analyzed the influence of previous daytime, overnight and daily returns from the DOW and IBEX upon 5-min intraday returns of the IBEX throughout the complete trading session. Clear evidence is provided relative to the influence of the DOW. The main finding that it underreacts to the DOW returns in the first hours of trading but overreacts during the last 2 h (after the opening of the US markets) would help to develop a profitable trading strategy.

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