Asymmetry in spillover effects: Evidence for international stock index futures markets

The paper investigates the asymmetry in return and volatility spillovers across futures markets with non-overlapping stock exchange trading hours. The transmission of positive and negative return and volatility shocks is analysed for 104 channels of information conveyance identified by combining 9 developed and 11 emerging markets in markets pairs with non-overlapping trading hours. The asymmetric causality test is employed to daily stock index futures returns and volatilities for the period from 03 October 2010 to 03 October 2014. The paper sheds light on the relatively little explored concept of asymmetry in return and volatility spillovers across markets, providing novel evidence on stabilizing and destabilizing spillover effects.     

Futures Trading Activity and Commodity Cash Price Volatility

Abstract:   This paper examines the lead‐lag relationship between futures trading activity (volume and open interest) and cash price volatility for major agricultural commodities. Granger causality tests and generalized forecast error variance decompositions show that an unexpected increase in futures trading volume unidirectionally causes an increase in cash price volatility for most commodities. Likewise, there is a weak causal feedback between open interest and cash price volatility. These findings are generally consistent with the destabilizing effect of futures trading on agricultural commodity markets.     

Dynamic spillover effects across petroleum spot and futures volatilities,trading volume and open interest

This paper examines the existence of dynamic spillover effects across petroleum based commodities and among spot-futures volatilities, trading volume and open interest. Realized volatilities of spot-futures markets are used as inputs to estimate a VAR model following Diebold and Yilmaz (2014, 2015) and distinguish dynamic spillovers in total and net effects. Results reveal the existence of large and time-varying spillovers among the spot-futures volatilities and across petroleum-based commodities when examined pairwise. In addition, speculative pressures, as reflected by futures trading volume, and hedging pressures, as reflected by open interest, are shown to transmit large and persistent spillovers to the spot and futures volatilities of crude oil and heating oil-gasoline markets, respectively.     

Dynamic spillover effects in futures markets: UK and US evidence

Previous studies on spillover effects in futures markets have so far confined themselves to static analyses. In this study, we use a newly introduced spillover index to examine dynamic spillovers between spot and futures markets volatilities, volume of futures trading and open interest in the UK and the US. Based on a dataset over the period February 25, 2008 to March 14, 2013, that encompasses both the global financial crisis and the Eurozone debt crisis, we find that spot and futures volatilities in the UK (US) are net receivers (net transmitters) of shocks to volume of futures trading and open interest. The analysis also sheds light on the dynamic interdependence of spot and futures markets volatilities between the US and the UK. Specifically, the spot and futures volatility spillovers between the UK and US markets are of bidirectional nature, however, they are affected by major economic events such as the global financial and Eurozone debt crises. Several robustness checks endorse our main findings. Overall, these results have important implications for various market participants and financial sector regulators.     

Futures trading volume as a determinant of prices in different momentum phases

Recent studies contend that trading volume has predictive power for ex ante stock prices, particularly small stocks that do not react quickly to macroeconomic information. This study postulates that a significant amount of macro-information that flows on to stock markets is derived from derivative markets. We examine the impact of short-term futures trading volume and prices on cash stock prices using a case study of 15-min data from the Australian stock index futures market which reports actual trading volume. After applying vector error correction modelling (VECM), variance decomposition and impulse functions, we conclude that futures prices provide a short-term information lead to stock prices that dominates trading volume effects. We also observe asymmetric changes in the impact of trading volume between bull and bear price momentum phases and after large trading volume shocks. These results suggest that, in future, studies on trading volume should control for the cross-correlation impact from derivative prices and the differential impact of trading phases.     

Shock and Volatility Transmission in the Futures and Spot Markets: Evidence from Turkish Markets

This paper examines the volatility transmission mechanism between the futures and corresponding underlying asset spot markets, focusing on Turkish currency and stock index futures traded on the lately established Turkish Derivatives Exchange (TURKDEX). Employing multivariate generalized autoregressive conditional heteroskedasticity modeling, which allows for potential spillovers and asymmetries in the variance-covariance structure for the market returns, the paper investigates the volatility interactions among each of the three futures-spot market systems. For all market systems under study, the volatility spillovers are found to be important and bidirectional. For the stock index market system, in line with the previous literature, volatility shows asymmetric behavior and strong asymmetric shock transmission. The main implication is that investors need to account for volatility spillovers and asymmetries among the futures and the spot markets to correctly build hedging strategies.     

国内外黄金市场价格间的联动关系稳定吗?——基于外部冲击视角的分析

在全球金融市场不断开放和融合的大背景下,黄金市场不但与外部市场频繁互动,其系统内部的联动关系也变得极为多元和复杂,黄金市场间的价格联动反映了信息和风险在不同市场间的传递过程。黄金价格通常会受到外部因素干扰而产生波动,但市场间的联动关系是否会因此而改变是值得重点关注的问题,黄金市场功能的有效性及稳固的市场关系是投资者利用全球黄金市场进行对冲和避险的先决条件,同时也关系到整个金融市场的稳定性。本文将研究重点聚焦于黄金市场内部,在研究中外各主要黄金市场间动态相关性和波动溢出效应的同时引入外部冲击以检验不同因素对黄金期货、现货市场间联动关系的影响从而探讨国内外黄金市场间价格联动的稳定性问题。结果表明:中国与全球主要黄金期货、现货市场间整体上保持了正相关关系,同时与各主要黄金市场间均存在显著的波动溢出效应。在一般市场条件下,外部冲击并没有显著改变中国与全球主要黄金期货、现货市场间的联动关系,表明黄金市场内部的价格联动具有较强的稳定性。     

Volatility spillovers between WTI and Brent spot crude oil prices: an analysis of granger causality in variance patterns over time

There has been an increase in price volatility in oil prices during and since the global financial crisis (GFC). This study investigates the Granger causality patterns in volatility spillovers between West Texas International (WTI) and Brent crude oil spot prices using daily data. We use Hafner and Herwartz’s (2006) test and employ a rolling sample approach to investigate the changes in the dynamics of volatility spillovers between WTI and Brent oil prices over time. Volatility spillovers from Brent to WTI prices are found to be more pronounced at the beginning of the analysis period, around the GFC, and more recently in 2020. Between 2015 and 2019, the direction of volatility spillovers runs unidirectionally from WTI to Brent oil prices. In 2020, however, a Granger-causal feedback relation between the volatility of WTI and Brent crude oil prices is again detected. This is due to the uncertainty surrounding how the COVID-19 pandemic will evolve and how long the economies and financial markets will be affected. In this uncertain environment, commodities markets participants could be reacting to prices and volatility signals on both WTI and Brent, leading to the detection of a feedback relation.     

Price and Volatility Spillovers in the Case of Stock Markets Located in Different Time Zones

This paper investigates the interdependence of price volatility across the U.S. stock market and two emerging markets: Poland and Hungary. Using daily data for countries located in different time zones, we point out the problems caused by the presence of nonsynchronous trading effects. To address this problem we use open-to-close logarithmic returns of major stock market indexes. The asymmetric impact of good and bad news is described by a multivariate exponential general autoregressive conditional heteroskedastic model. We investigate the sample from May 2004 to December 2011. The evidence is that the U.S. prices spill over to other markets. Our results show no pronounced volatility spillovers among the three examined markets. Moreover, we observe the presence of negative asymmetry in the case of all markets.     

Information transmission in informationally linked markets: Evidence from US and Chinese commodity futures markets

This paper investigates information transmission and price discovery in informationally linked markets within the multivariate generalized autoregressive conditional heteroskedasticity and information share frameworks. Based on both synchronous and non-synchronous trading information from Chinese futures/spot markets, the New York Mercantile Exchange (NYMEX), Chicago Board of Trade (CBOT), and CME Globex futures markets for copper and soybeans, we show that there is a bidirectional relationship in terms of price and volatility spillovers between US and Chinese markets, with a stronger effect from US to Chinese markets than the other way around. Additionally, the NYMEX and CBOT play a more important role than the CME Globex in the flow of information from US to Chinese markets. Moreover, we find that Chinese copper market adjusts more quickly than the NYMEX copper market to correct the disparity between both markets. However, the converse is true in the case of soybeans. Finally, our results highlight the remarkable role of Chinese futures markets in the price formation process, though NYMEX and CBOT futures markets are the main driving force in price discovery.     

Degree of Integration Between Brent Oil Spot and Futures Markets: Intraday Evidence

We investigate the integration of oil spot and futures markets using matched, intraday data to avoid nonsynchronous trading issues. Our evidence indicates highly integrated spot and futures markets. Economic shocks that arise in spot markets are quickly transmitted to the futures markets approximately one-for-one. Most of the reaction occurs within minutes. Similarly, economic shocks arriving in futures markets are transmitted to spot markets one-for-one, once again, within minutes consistent with market efficiency. In general, our findings indicate well-functioning, well-integrated spot and futures oil markets that are informationally efficient and that perform the functions of both price discovery and risk transfer. To the best of our knowledge, this is the first article to work with precisely matched customized data in futures markets, specifically oil futures markets.     

Dynamic volatility spillovers across oil and natural gas futures markets based on a time-varying spillover method

This paper analyzes dynamic volatility spillovers between four major energy commodities (i.e., crude oil, gasoline, heating oil and natural gas) in the oil-natural gas future markets. We construct a time-varying spillover method by combining the TVP-VAR-SV model and the spillover method of Diebold and Yilmaz (2009, 2012, 2014). We use the spillover method to obtain time-varying total, directional and pairwise volatility spillover indices. Our results summarize as follows: (1) The volatility spillover indices present peaks and troughs during some periods, such as shale gas revolution, financial crisis, and oil price crash; (2) After the U.S. shale gas revolution, the size of volatility spillover from natural gas future market has reduced sharply, but volatility doesn't decouple from the other three oil future markets; (3) The directional spillover is asymmetric. The crude oil and heating oil futures market are main net transmitter of volatility risk information, while the gasoline and natural gas futures markets are the net receiver; (4) For natural gas future market, the pairwise volatility spillover from crude oil future market has the most significant influence.     

The Influence of Information Arrival on Market Microstructure: Evidence from Three Related Markets

This study examines the influence of information arrival on market microstructure for the MMI, NYSE, and S&P 500 stock index futures markets, with special emphasis on the effects of opening and closing of trading and expiration of contracts on price movements and trading activities. The results of the examination show that although the opening of the (MMI) futures market is associated with higher volatility, it is when the spot market opens that volatility reaches its highest level. Similarly, the closing of the futures markets, though more volatile, is not as volatile as the closing of the spot markets. Trading patterns, on the other hand, are distinct from volatility. For MMI, trading declines consistently after the close of the spot market. In contrast, the NYSE and S&P 500 continue to trade and reach a peak at the close of the futures markets. Expiration effects are evidenced by the increase in volatility and trading near the closing of the MMI and the spillover to the NYSE and S&P 500. In sharp contrast, the expirations of the NYSE and S&P 500 are only assooiated with decrease in trading, suggesting that efforts to dampen volatility by changing expiration days from Friday to Thursday and shifting settlement price from Friday close to Friday open, have been successful.     

Informational Frictions and Commodity Markets

This paper develops a model with a tractable log‐linear equilibrium to analyze the effects of informational frictions in commodity markets. By aggregating dispersed information about the strength of the global economy among goods producers whose production has complementarity, commodity prices serve as price signals to guide producers' production decisions and commodity demand. Our model highlights important feedback effects of informational noise originating from supply shocks and futures market trading on commodity demand and spot prices. Our analysis illustrates the weakness common in empirical studies on commodity markets of assuming that different types of shocks are publicly observable to market participants.     

Price Dynamics and Information Flows in Strategically-Linked Debt Instruments: The NOB and MOB Constituents

We examine information flows between the constituents of the NOB (notes-over-bonds) and MOB (municipals-over-bonds) futures spreads. The results suggest a bicausal relationship between notes and bonds and a unicausal relationship from bonds to municipals. Shocks in the bond market have a large impact on the municipal and note markets, whereas shocks in the municipal or note markets have a smaller impact on the bond market. Volatility spillover from bonds to notes and municipals is detected. We also find significant volatility persistence in all three markets. Spread trades are found to have an asymmetric influence on notes and municipal futures variance.     

中国利率市场的价格发现——对国债现货、期货以及利率互换市场的研究

本文采用信息份额模型和基于向量自回归(VAR)模型的格兰杰因果检验,研究了国债现货、国债期货和利率互换三个市场之间的价格发现机制。信息份额模型表明,从整体来看利率互换相对于国债期货和国债现货都具有信息优势,而国债期货相对于国债现货具有信息优势。另外,国债期货的价格发现能力相对于另外两个市场都在随时间增强。格兰杰因果检验结果显示,利率互换在价格发现中单向引领国债期货以及国债现货,国债期货单向引领国债现货。所有结果一致表明, 利率互换和国债期货这两种利率衍生产品在引导中国利率市场价格发现中发挥了重要作用。     

A Model of Financialization of Commodities

We analyze how institutional investors entering commodity futures markets, referred to as the financialization of commodities, affect commodity prices. Institutional investors care about their performance relative to a commodity index. We find that all commodity futures prices, volatilities, and correlations go up with financialization, but more so for index futures than for nonindex futures. The equity‐commodity correlations also increase. We demonstrate how financial markets transmit shocks not only to futures prices but also to commodity spot prices and inventories. Spot prices go up with financialization, and shocks to any index commodity spill over to all storable commodity prices.     

限制交易政策如何影响期现关系?——对股指期货价格发现功能的实证检验

本文利用2015年中国股市大幅下跌期间,对股指期货严格限制交易政策这一独特事件前后的高频数据,研究限制交易政策对股指期货与股票市场价格引导关系的影响。利用I-S模型和分位数回归方法的实证结果表明:限制交易政策实施前,股指期货对股票市场的价格影响更强,尤其表现在价格急剧下跌时期;限制交易政策显著增加了期货市场交易成本,从而降低了期货市场的信息份额,削弱了其对股票市场的价格影响,并且改变了期货价格对现货价格“助跌强于助涨”的影响模式,增强了股指期货在价格上涨时对股票市场的影响。研究结果一方面直接量化了期货交易成本变动对其价格发现功能的负面影响,另一方面也从价格引导关系的视角提供了股市危机时期股指期货限制交易政策监管效果的实证证据。     

Do the Forward Sales of Real Estate Stabilize Spot Prices?

We examine the effect of forward sale (pre-sale) activities on the volatility of spot prices in the real estate market. The abundance of pre-sales data and major changes in regulatory control on the pre-sale market during the 90's in Hong Kong allow us to undertake empirical tests using Hong Kong's real estate data. Our results show that the volatility of spot prices increased significantly after forward sales were severely dampened by regulatory control measures introduced in 1994, but decreased again when the measures were partly relaxed in 1998. The results contribute to the long lasting debate on whether the introduction of a futures market reduces the volatility of spot prices. Previous studies were mainly conducted in markets with low transaction costs, notably financial markets. By utilizing the unique regulatory changes in the pre-sale market of Hong Kong, we are able to conduct an experiment on the conditional volatility of spot prices in a high information-cost environment, thereby shedding light on the important role of forward housing contracts in providing price expectation information for spot trading.     

Price discovery and volatility spillovers in the European Union emissions trading scheme: A high-frequency analysis

This paper models the relationship of European Union Allowance spot- and futures-prices within the second commitment period of the European Union emissions trading scheme. Based on high-frequency data, we analyze the transmission of information in first and second conditional moments. To reveal long-run price discovery, we compute common factor weights of Schwarz and Szakmary (1994) and information shares of Hasbrouck (1995) based on estimated coefficients of a VECM. To analyze the short-run dynamics, we perform Granger-causality tests. We identify the futures market to be the leader of the long-run price discovery process, whereas the informational role of the futures market increases over time. In addition, we employ a version of the UECCC-GARCH model as introduced by Conrad and Karanasos (2010) to analyze the volatility transmission structure. The volatility analysis indicates a close relationship between the volatility dynamics of both markets, whereas in particular we observe spillovers from the futures to the spot market. As a whole the investigation reveals that the futures market incorporates information first and then transfers the information to the spot market.