Price discovery in bitcoin spot or futures?

In December 2017, both the Chicago Board Options Exchange and the Chicago Mercantile Exchange introduced futures contracts on bitcoin. We investigate to what extent they provide useful information for the price discovery of bitcoin. We rely on the information share methodology of Hasbrouck (1995, J Finance, 50, pp. 1175–1199) and Gonzalo and Granger (1995, J Bus Econ Stat, 13, pp. 27–35) and find that the spot price leads the futures price. We attribute this result to the higher trading volume and the longer trading hours of the globally distributed bitcoin spot market, compared to the relatively restricted access to the US-based futures markets.     

Price discovery and volatility spillovers in the DJIA index and futures markets

The Dow Jones Industrial Average (DJIA) is the most widely quoted stock index worldwide. This article examines the minute-by-minute price discovery process and volatility spillovers between the DJIA index and the index futures recently launched by the CBOT. The Hasbrouck (1995) cointegrating model suggests that most of the price discovery takes place at the futures market. However, by examining the volatility spillovers between the markets based on a bivariate EGARCH model, a significant bidirectional information flow is found. That is, innovations in one market can predict the future volatility in another market, but the futures market volatility-spillovers to the stock market more than vice versa. Both markets also exhibit asymmetric volatility effects, with bad news having a greater impact on volatility than good news. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 911–930, 1999     

When stock futures dominate price discovery

This paper revisits the role of leverage in price discovery, using one of the most liquid single-stock futures (SSFs) markets in the world. Price discovery is analysed as a dynamic intraday process. We find that the information share of the SSFs is 55% during news arrivals. It increases to 61%, when the news is negative and the futures is preferred because of short-sales restrictions on the spot. A partial equilibrium analysis predicts that the trade-off between leverage and market liquidity determines price discovery across securities. These predictions are validated by empirical evidence.     

Impact of bitcoin futures on the informational efficiency of bitcoin spot market

This study examines the informational efficiency of the bitcoin spot market by evaluating the predictive power of mechanical trading rules designed to exploit price continuation. Significant return predictability is found until the introduction of bitcoin futures in December 2017. The forecasting ability of trend‐chasing trading rules declines dramatically afterwards. Although evidence suggests that the introduction of bitcoin futures has increased the informational efficiency of the bitcoin spot market, no signs of improvement in informational efficiency are found in ethereum, the second‐largest cryptocurrency—following the introduction of bitcoin futures.     

Price discovery in the hang seng index markets: Index,futures, and the tracker fund

In this paper, price discovery among the Hang Seng Index markets is investigated using the Hasbrouck and Gonzalo and Granger common‐factor models and the multivariate generalized autoregressive conditional heteroskedasticity (M‐GARCH) model. Minute‐by‐minute data from the Hang Seng Index, Hang Seng Index futures, and the tracker fund show that the movements of the three markets are interrelated. The futures markets contain the most information, followed by the spot market. The tracker fund does not contribute to the price discovery process. The three markets exhibit spillover effects, indicating that their second moments are linked, even though the flow of information from the tracker fund to the other markets is minimal. Overall results suggest that the three markets have different degrees of information processing abilities, although they are governed by the same set of macroeconomic fundamentals. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:887–907, 2004     

The impact of the US stock market opening on price discovery of government bond futures

We examine price discovery in sequential markets for the 10-year US Treasury note, German bund, and UK gilt futures over the period 2010–2017. We find that price discovery increases after the opening of the US stock market. Order flows in the bond futures markets are more informative for permanent price changes in the 30-min period after the US stock market opens. A placebo test using US statutory holidays confirms our findings. A cross-market analysis suggests that the increased price discovery in the bond futures is related to returns and net order flows of the US stock market.     

Investor Sentiment and Return Predictability in Agricultural Futures Markets

This study examines the usefulness of trader‐position‐based sentiment index for forecasting future prices in six major agricultural futures markets. It has been found that large speculator sentiment forecasts price continuations. In contrast, large hedger sentiment predicts price reversals. Small trader sentiment hardly forecasts future market movements. An investigation was performed into various sentiment‐based timing strategies, and it was found that the combination of extreme large trader sentiments provides the strongest timing signal. These results are generally consistent with the hedging‐pressure theory, suggesting that hedgers pay risk premiums to transfer nonmarketable risks in futures markets. Moreover, it does not appear that large speculators in the futures markets possess any superior forecasting ability. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:929–952, 2001     

Do futures lead price discovery in electronic foreign exchange markets?

Using intraday data, this study investigates the contribution to the price discovery of Euro and Japanese Yen exchange rates in three foreign exchange markets based on electronic trading systems: the CME GLOBEX regular futures, E‐mini futures, and the EBS interdealer spot market. Contrary to evidence in equity markets and more recent evidence in foreign exchange markets, the spot market is found to consistently lead the price discovery process for both currencies during the sample period. Furthermore, E‐mini futures do not contribute more to the price discovery than the electronically traded regular futures. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 29:137–156, 2009     

Market Efficiency and Price Discovery in Cocoa Markets

ABSTRACT

This paper tests the efficiency and price discovery mechanism in the cocoa cash and futures markets over the period March 1981–August 2009. The results indicate that the price discovery is done in the cash market and spreads to the futures markets and that the futures price can be seen as an unbiased predictor of future cash prices. There is no sign of a risk premium in the futures price. Since the cash behaves like a random walk we cannot reject market efficiency.     

Impact of algorithmic trading on speed of adjustment to new information: Evidence from interest rate derivatives

In February 2012, the Australian Securities Exchange introduced co-location services for futures traders, thus providing a natural experiment to test the impact of algorithmic trading (AT) on the speed of adjustment and price discovery during scheduled macroeconomic releases. Our results demonstrate that, in the presence of AT, the speed of adjustment to new information has improved for both exchange-traded futures and over-the-counter-traded swaps. In addition, we find that the price discovery contribution of the futures market improves in the post-AT period, with this improvement significant for macroeconomic announcement days.     

Market microstructure of FT-SE 100 index futures: An intraday empirical analysis

This article examines the market microstructure of the FT-SE Index futures market by analyzing the intraday patterns of bid-ask spreads and trading activity. The patterns are remarkably different from those of stock and options markets because of the futures market's open outcry system with frenzied scalpers/short-term marketmakers. Spreads are stable over the day, but decline sharply at the close and increase when U.S. macroeconomic news is distributed. Traders actively trade at the open with narrow spreads and large trade sizes. Volatility and volume have higher values at the open and close and when U.S. news is released. The overall results suggest that information asymmetry in the index futures market is insignificant, and traders find it easy to control inventory. The results are also broadly consistent with the Grossman and Miller (1988) model that describes liquidity as the price of transaction demand for immediacy. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 31–58, 1999     

Price discovery in the foreign exchange futures market

Examination is made of the relative contributions to price discovery of the floor and electronically traded euro FX and Japanese yen futures markets and the corresponding retail on‐line foreign exchange spot markets. GLOBEX electronic futures contracts provide the most price discovery in the euro; the on‐line trading spot market provides the most in the Japanese yen. The floor‐traded futures markets contribute the least to price discovery in both the euro and the Japanese yen markets. The overall results show that electronic trading platforms facilitate price discovery more efficiently than floor trading. Futures traders may also extract information from on‐line spot prices. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:1131–1143, 2006     

Intraday price discovery and volatility transmission in stock index and stock index futures markets: Evidence from China

Using high‐frequency data, this study investigates intraday price discovery and volatility transmission between the Chinese stock index and the newly established stock index futures markets in China. Although the Chinese stock index started a sharp decline immediately after the stock index futures were introduced, the cash market is found to play a more dominant role in the price discovery process. The new stock index futures market does not function well in its price discovery performance at its infancy stage, apparently due to high barriers to entry into this emerging futures market. Based on a newly proposed theoretically consistent asymmetric GARCH model, the results uncover strong bidirectional dependence in the intraday volatility of both markets. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark     

Price discovery and investor structure in stock index futures

Previous literature on price discovery in stock index futures and spot markets neglects the role of different investor groups. This study relates time‐varying spot‐futures linkages studied within a VECM‐DCC‐GARCH framework to changes in the investor structure of the futures market over time. Empirical results suggest that during the dominance of presumably uninformed private investors, the futures market does not contribute to price discovery. By contrast, there is evidence of information flows from futures to spot markets and a significant increase in conditional correlation between both markets as institutional investors' share in trading volume increases. We derive implications for the design of emerging futures markets. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark31:282–306, 2011     

Benchmark tipping and the role of the swap market in price discovery

The author uses a high‐frequency data set to investigate the roles of the sterling swap and futures markets in price discovery at the short‐end of the sterling yield curve. Information flows between the futures and swap markets are found to be largely contemporaneous. Causal information flows are bidirectional, although the futures market dominates the information flow over the very short term. Thus, the futures market remains the primary locus of price discovery despite the increased use of swaps as a pricing benchmark and hedging instrument in recent years. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:981–1001, 2007     

中美玉米期货市场功能效率比较

价格发现与套期保值是期货市场的基本功能,能够反映期货市场的运行效率。通过对比中美贸易摩擦前后期货市场的价格发现和套期保值功能,分析中美玉米期货市场效率间的差距,探究我国玉米期货市场运行效率低的原因。利用格兰杰(Granger)因果分析、协整检验、分位信息份额模型、套期保值比率及绩效分析方法,定量对中美两国2013—2019年玉米期货及现货的数据进行分析,结果表明,中国玉米期货市场存在较强的价格发现功能,但套期保值绩效不佳。使用前沿分位信息份额模型和滚动格兰杰因果法分析中美两国期现货市场动态关系的区别,发现中国仅存期货市场对现货市场的单向引导,而美国在中美贸易摩擦前表现为玉米期现货市场具有相近的引导能力,套期保值效率较高,中美贸易摩擦增强了其现货市场对期货市场的引导能力,降低了期货市场运行效率。从期现货市场双向引导关系视角来看,中国玉米期货市场效率低的原因主要是现货市场的信息不完全、发展不完善,期现货市场缺少长期稳定的双向引导关系抑制了期货市场功能发挥。中国应全面加强期货市场建设,提升期货市场定价效率,推动农产品期货市场快速健康发展。     

The impact of crude oil inventory announcements on prices: Evidence from derivatives markets

This study examines the impact of weekly crude oil storage announcements on oil futures and options prices. We document evidence of a strong announcement day effect on both markets, and find prices to move in anticipation of the inventory surprise. Futures returns significantly decrease with positive surprises and increase with negative surprises. There is no evidence of an asymmetric impact on futures prices. Near‐the‐money options exhibit the greatest price sensitivity, and the magnitude of the price response of both futures and options declines with maturity. The results remain robust even after controlling for various macroeconomic and other storage‐related news variables.     

Herding behaviour in an emerging market: Evidence from the Moscow Exchange

This study investigates the extent to which herding towards the market consensus for Russian stocks is driven by fundamental and non-fundamental factors. We find evidence that investors on the Moscow Exchange herd without any reference to fundamentals during unanticipated financial crises coupled with high uncertainty, in falling markets, and during days with extreme upward oil price movements. In contrast, in periods of high liquidity and on days of international sanction announcements during the Ukrainian crisis, herding behaviour is merely driven by fundamentals. In Russia, macroeconomic news releases induce both information-related herding and herding without any reference to fundamentals. These results suggest that motives of investors' herding behaviour vary under specific market conditions such as market trends, liquidity, uncertainty, arrival of new information, and oil price volatility.     

Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures

We show how trading protocols impede the price discovery process in single stock futures as implicit trade costs outweigh explicit costs. Despite the trade volume dominance, trade costs advantage and leverage efficiency in futures markets, single stock futures account for only 35% of the price discovery vis-á-vis the spot market. Futures market's informational efficiency is adversely affected by market frictions in the form of marketwide position limits, minimum contract values, and margin requirements.     

Public News Arrival and Cross‐Asset Correlation Breakdown

This study models and tests empirically the role of public news arrivals in the quote matching across single‐stock futures and underlying stock markets—a trading strategy often adopted by algorithmic traders. Our model suggests that quote return correlation across these two markets breaks down when the news uncertainty is sufficiently large and futures market makers switch from automating the quote matching process to manually analyze, monitor, and update quotes. We show empirically that the breakdown is more prominent for large stocks, and this effect of firm size falls during periods of high‐market volatility. Our empirical results are robust to the effect of distraction due to extraneous news events.