This paper examines daily return and volatility spillovers in Taiwan spot and futures stock index markets by using a generalized vector autoregressive (generalized VAR) model where forecast-error variance decompositions are invariant to variable ordering. We measure both total and directional volatility spillovers. This study has used six spot and futures indices, Taiwan Stock Exchange Capitalization Weighted Stock Index (TX), Taiwan Stock Exchange Electronic Sector Index (TE), Taiwan Stock Exchange Finance Sector Index (TF), Future index of TAIEX (FITX), Future index of TE (FITE) and Future index of TF (FITF), daily data spanning over 1th January 2001 to 31st March 2010. From empirical result, the generalized vector autoregressive model shows that the return and volatility spillovers from FITE and FITF to other indices are relatively large. It is clear that futures market is more dominantly to have an effect on spot market but return spillovers from spot to futures could not be ignored.

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