Price Discovery and Volatility Spillovers in Index Futures Markets PDF Download

Author: Maosen Zhong
Publisher:
ISBN:
Category :
Languages : en
Pages : 26

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Book Description
This paper investigates the hypotheses that the recently established Mexican stock index futures market effectively serves the price discovery function, and that the introduction of futures trading has provoked volatility in the underlying spot market. We test both hypotheses simultaneously with daily data from Mexico in the context of a modified EGARCH model that also incorporates possible cointegration between the futures and spot markets. The evidence supports both hypotheses, suggesting that the futures market in Mexico is a useful price discovery vehicle, although futures trading has also been a source of instability for the spot market. Several managerial implications are derived and discussed.

Author: Sotirios Karagiannis
Publisher:
ISBN:
Category :
Languages : en
Pages : 50

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This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of FTSE/ASE-20 futures and the underlying FTSE/ASE-20 cash index of the Athens Stock Exchange. The results suggest that there is a bidirectional causality between spot and futures returns, rejecting the usual result of futures leading spot market. However, spot market seems to play a more important role in price discovery. Volatility spillovers across the two markets are examined by using a bivariate EGARCH(1,1) model. This model is found to capture all the volatility dynamics. The results indicate that the transmission of volatility is bidirectional. Any piece of information that is released by the cash market has an effect on futures market volatility, and vice versa. Nevertheless, the volatility spillover from spot to futures market is slightly stronger than in the reverse direction.

Author: Mario Gabriel C. Reyes
Publisher:
ISBN:
Category : Commodity exchanges
Languages : en
Pages : 258

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Author: Ilias Visvikis
Publisher:
ISBN:
Category :
Languages : en
Pages : 28

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Book Description
This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of stock index futures and the underlying cash index in the FTSE/ASE-20 and FTSE/ASE Mid-40 markets of the Athens Stock Exchange. Empirical results confirm previous findings that there is a large contemporaneous relation, together with asymmetric lead-lag behaviour between the cash and futures markets. There is evidence that the futures lead the cash index returns, by responding more rapidly to economic events than stock prices. This asymmetric lead-lag relation can be attributed to the predictive power of futures returns, supporting the price discovery hypothesis that new market information is disseminated faster in the futures market compared to the stock market. After examining whether daily volatility in futures prices has systematically lead daily volatility in the cash index, the results provide a weak indication that cash volatility spills some information in the futures market volatility in the FTSE/ASE-20 market. In the FTSE/ASE Mid-40 market, the results indicate that there are robust volatility spillovers from the futures to the cash market, which imply that the futures market can be used as a price discovery vehicle.

Author: Wentao Zhou
Publisher:
ISBN:
Category :
Languages : en
Pages : 24

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Book Description
Using daily data, this paper empirically investigates the price discovery and information transmission in China's stock index futures and spot markets based on a VAR-GARCH model with SSAEPD margins. By comparing our model with classic VAR-GARCH model, we discover that our model can better capture the skewness, fat-tailness and asymmetric kurtosis in our data and has better in-sample fit than the VAR-GARCH model. Then, we use our model to conduct structural analysis. Causality Analysis, Impulse Response Function and Volatility Impulse Response Function indicate that there exists a significant bidirectional price causal relationship between the index futures and spot returns. And China's index futures market function very well in its price discovery performance, since the index futures market is found to lead the underlying spot market and plays a more dominant role in the price discovery process. Besides, Volatility Impulse Response Function also shows a higher investment risk in index futures market compared with index spot markets.

Author: Charles M.S. Sutcliffe
Publisher: Routledge
ISBN: 1351148540
Category : Business & Economics
Languages : en
Pages : 844

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Book Description
The global value of trading in index futures is about $20 trillion per year and rising and for many countries the value traded is similar to that traded on their stock markets. This book describes how index futures markets work and clearly summarises the substantial body of international empirical evidence relating to these markets. Using the concepts and tools of finance, the book also provides a comprehensive description of the economic forces that underlie trading in index futures. Stock Index Futures 3/e contains many teaching and learning aids including numerous examples, a glossary, essay questions, comprehensive references, and a detailed subject index. Written primarily for advanced undergraduate and postgraduate students, this text will also be useful to researchers and market participants who want to gain a better understanding of these markets.

Author: Robert A. Jarrow
Publisher:
ISBN:
Category : Derivative securities
Languages : en
Pages : 472

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Book Description
Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.

Author: Sarveshwar Inani
Publisher:
ISBN:
Category :
Languages : en
Pages :

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This research aims to revisit the price discovery relationship between spot and futures prices of Indian equity index S&P CNX Nifty, using neural network approach. This study uses minute-by-minute prices of 167 trading days ranging from January, 2015 to August, 2015 to gain fresh insights on price discovery. The results reveal that change in futures prices lead the change in spot prices in training and testing of our sample. Neural network is an advanced methodology which is more effective in capturing non-linear relationship between spot and futures prices. Therefore, the results of this study could be considered more reliable and more robust as compared to previous studies for Indian market. Mean absolute error of the results indicates that, incorporation of futures returns in modelling spot returns improves the model by 30.8%. Whereas, inclusion of spot returns in modelling futures returns improves the results by only 25.4%. Though bidirectional spillover effect is present between spot and futures returns, but the futures returns are more dominant and more efficient. Therefore, it could be concluded that futures market serves as price discovery vehicle.

Author: Bernd Schlusche
Publisher:
ISBN:
Category :
Languages : en
Pages :

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This paper reconsiders the process of price discovery in spot and futures markets. In our study, we examine the contribution of two derivative products of the German blue chip index DAX: Exchange traded funds and index futures. In order to eliminate noise caused by differences in the microstructure of the markets, we use transaction data only from electronic-trading markets. We apply a linear vector error correction model for our estimations and we use the common factor weights, first proposed by Schwarz and Szakmary (1994), to quantify the contribution of each market to the process of price discovery. Our results indicate that the futures market leads in the process of price discovery. Furthermore, we show that volatility, and not liquidity, as would be conjectured by the transaction-costs hypothesis, is the driving factor for relative price leadership between the two markets.

Author: Hun Y. Park
Publisher:
ISBN:
Category : Prices
Languages : en
Pages : 56

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Book Description
This paper compares the volatility of spot prices (dealership market) with that of futures prices (auction market) to test the implications of different trading mechanisms for the volatility of prices. First, a natural estimator of the volatility is sued. Using the intraday data of the major Market Index and its futures prices, we show that the volatility of opening prices is higher than that of closing prices not only in the spot market but in the futures market, and that the intraday volatility patterns are U-shaped in both markets. Of particular interest is that futures prices do not appear to be as volatile as spot prices when the natural estimator of volatility is used, to the contrary of the conventional wisdom. We argue that the different volatility patterns during the day are not necessarily due to the different trading mechanisms, auction market versus dealership market. Instead, after developing a simple theoretical model of speculative prices, we show that at least part of the different volatility patterns during the day may be attributable to speculative behavior of investors based on heterogeneous information. In addition, we further investigate the volatilities of spot and futures prices using a temporal estimator of price volatility as an alternative to the natural estimator. Based on the temporal estimator, we cannot find any systematic pattern of volatilities during the day in both spot and futures markets, and that futures prices appear to be more volatile than spot prices in terms of how quickly the price moves beyond a given unit price level, but not in terms of how much the price changes during a given unit time interval. Some policy implications are also discussed.