The Impact of New Index Construction on Lead-Lag Relationship Between Futures and Spot Markets PDF Download
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Author: Wai-Siang Tan
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Languages : en
Pages : 1
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Book Description
This paper uses linear and nonlinear Granger causality tests to study the lead-lag relationship between FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) and Kuala Lumpur Composite Index Futures (FKLI). We apply a new nonparametric test for Granger causality test by Diks and Panchenko (2006) and linear Granger causality test on the daily return time series. Both tests provide evidence of bi-directional Granger causality relations between cash and futures market before and after implementation of the new index. However, the evidence shows that since the implementation of new index in which number of constituents reduces from 100 to 30 and change in the calculation methodology and rule, the effect of cash market lead futures market has increased.
Author: Wai-Siang Tan
Publisher:
ISBN:
Category :
Languages : en
Pages : 1
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Book Description
This paper uses linear and nonlinear Granger causality tests to study the lead-lag relationship between FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) and Kuala Lumpur Composite Index Futures (FKLI). We apply a new nonparametric test for Granger causality test by Diks and Panchenko (2006) and linear Granger causality test on the daily return time series. Both tests provide evidence of bi-directional Granger causality relations between cash and futures market before and after implementation of the new index. However, the evidence shows that since the implementation of new index in which number of constituents reduces from 100 to 30 and change in the calculation methodology and rule, the effect of cash market lead futures market has increased.
Author: Joseph K. W. Fung
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Languages : en
Pages :
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We examine the lead-lag relation between index futures and the underlying index under three types of short-selling restrictions on stocks in Hong Kong. Our results indicate that lifting short-selling restrictions can enhance the informational efficiency of the stock market relative to the index futures. We also investigate the impact of two market characteristics, market conditions and the magnitude of mispricing on the lead-lag relations under different short-selling regimes. Our findings suggest that if we remove restrictions, the contemporaneous price relation between the futures and cash markets becomes stronger particularly in the falling market and when the cash market is relatively overpriced.
Author: Ersan Ersoy
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Languages : en
Pages : 18
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Book Description
In perfectly frictionless and rational markets, spot markets and futures markets should simultaneously reflect new information. However, due to market imperfections, one of these markets may reflect information faster than the other and therefore may lead to the other. This study examines the lead-lag relationship between stock index and stock index futures, in terms of both price and volatility, by using 5 minute data over 2007-2010 period. The findings of this study indicate that a stable long-term relationship between Turkish stock index and stock index futures exists, however stock index futures do not lead stock index and there is a two way interaction between them. Therefore either of the markets is dominant over the other one in the price formation process.
Author: Sotirios Karagiannis
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ISBN:
Category :
Languages : en
Pages : 50
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Book Description
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: Alex Frino
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Category :
Languages : en
Pages : 27
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Book Description
In this paper, we consider the impact of the introduction of LIFFE CONNECT on the lead-lag relationship between the FTSE100 index and its futures. In general, the results of this study suggest that the move to screen trading strengthens the simultaneity of price discovery in the cash and futures markets and lessens the existence of a lead-lag relationship. This evidence differs to that of the previous literature which has generally found a strengthening of the lead of the futures market to the cash market. The reason for this difference in results is most likely a reflection of the fact that the cash market was generally floor traded in the previous literature, while in this study the FTSE100 was screen traded.
Author: Ilias Visvikis
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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: Sotirios Karagiannis
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Languages : en
Pages : 14
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This study investigates the lead-lag relationship between the price movements of VIX futures and VIX index levels. As a proxy for the futures, the front month VIX futures contract is used. A Johansen cointegration approach with a vector error correction model and Granger causality analysis are applied. The results suggest that VIX futures lead spot VIX index, which implies that VIX futures market seems to play a more important role in price discovery.
Author:
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Category :
Languages : en
Pages : 50
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Book Description
Author: Chris Brooks
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Languages : en
Pages :
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This paper examines the lead-lag relationship between the FTSE 100 index and index futures price employing a number of time series models. Using ten-minutely observations from June 1996-1997, it is found that lagged changes in the futures price can help to predict changes in the spot price. The best forecasting model is of the error correction type, allowing for the theoretical difference between spot and futures prices according to the cost of carry relationship. This predictive ability is in turn utilised to derive a trading strategy which is tested under real-world conditions to search for systematic profitable trading opportunities. It is revealed that although the model forecasts produce significantly higher returns than a passive benchmark, the model was unable to outperform the benchmark after allowing for transaction costs.
Author: Kotaro Miwa
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Languages : en
Pages : 28
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Book Description
I present evidence that transactions of the stock futures of a flawed market index cause mispricing in individual stocks. In particular, I analyze whether stocks overweighted on the index are mispriced, especially when market movements driven by futures trading are observed. To detect such movements, I use a qualitative indicator based on daily stock market news and a quantitative indicator based on the intraday lead-lag relationship between the spot and futures markets. I find that overweighted stocks are overpriced (underpriced) when upward (downward) movements driven by futures trading are observed. By contrast, such mispricing is not observed for non-constituent stocks.
