Price Discovery And Volatility Spillovers In Index Futures Markets
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| Author | : Maosen Zhong |
| Publisher | : |
| Total Pages | : 26 |
| Release | : 2004 |
| Genre | : |
| ISBN | : |
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 | : |
| Total Pages | : 50 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
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 | : Wentao Zhou |
| Publisher | : |
| Total Pages | : 24 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
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 |
| Total Pages | : 844 |
| Release | : 2018-01-18 |
| Genre | : Business & Economics |
| ISBN | : 1351148540 |
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 | : Natividad Blasco |
| Publisher | : |
| Total Pages | : |
| Release | : 2007 |
| Genre | : |
| ISBN | : |
In line with the transactions cost theory, this paper shows that the futures market with its higher liquidity and lower transactions costs, leads the options market in the price discovery process. Liquidity and transaction costs are also shown to play a key role in market sensitivity to information, since the futures market's response to shocks is quicker, which means that it receives higher volatility spillovers than does the options market.
| Author | : Sarveshwar Inani |
| Publisher | : |
| Total Pages | : |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
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 | : Matthias Kalkuhl |
| Publisher | : Springer |
| Total Pages | : 620 |
| Release | : 2016-04-12 |
| Genre | : Business & Economics |
| ISBN | : 3319282018 |
This book provides fresh insights into concepts, methods and new research findings on the causes of excessive food price volatility. It also discusses the implications for food security and policy responses to mitigate excessive volatility. The approaches applied by the contributors range from on-the-ground surveys, to panel econometrics and innovative high-frequency time series analysis as well as computational economics methods. It offers policy analysts and decision-makers guidance on dealing with extreme volatility.
| Author | : Bernd Schlusche |
| Publisher | : |
| Total Pages | : |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
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 | : |
| Total Pages | : 56 |
| Release | : 1989 |
| Genre | : Prices |
| ISBN | : |
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.
| Author | : |
| Publisher | : |
| Total Pages | : |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
This thesis is concerned with the question of how price discovery happens between equity index spot and future markets. We look at existing price discovery measures and the recent discussion around these to evaluate whether the spot or future market dominates the price discovery process in the case of the S&P 500 as well as the DAX index. Besides the widely used price discovery measures of Hasbrouck's (1995) information share and the component share, we apply a structural cointegration model as proposed by Yan and Zivot (2007, 2010) to identify price discovery impulse response functions and price discovery efficiency losses for the individual markets. This allows for a dynamic approach to price discovery as compared to the standard measures. We are one of the first studies to apply Yan and Zivot's proposed model to equity indices. We find that the different price discovery measures might give opposite indications of price discovery dominance, whereas the newly applied approach of Yan and Zivot contributes the majority of price discovery to the futures markets in both data sets.
