Introducing the mini-futures contract on Ibex 35: implications for price discovery and volatility transmission |
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Authors: | M Illueca J A Lafuente |
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Institution: | (1) Departamento de Finanzas y Contabilidad, Facultad de Ciencias Jurídicas y Económicas, Universitat Jaume I, Campus del Riu Sec, s/n, 12071 Castellón, Spain;(2) IVIE, C/Guardia Civil 22, 46023 Valencia, Spain |
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Abstract: | This paper analyzes the effects of the introduction of the mini-futures contract in the Spanish stock index futures market.
The objective of the paper is twofold: (a) to analyze the potential destabilizing effect of the mini futures trading activity
on the distribution of spot returns, and (b) to test whether the mini futures contract significantly contributes to the price
discovery process. A non-parametric approach is used to estimate the density function of spot return conditional to both spot
and futures trading volume. Empirical findings using 15-min intraday data reveal that the mini futures trading activity enhances
the price discovery function of the derivative market and does not destabilize spot prices.
A preliminary version of this paper has been previously published as a working paper of the Instituto Valenciano de Investigaciones
Económicas, WP-EC 2004-13. M. Illueca and Juan A. Lafuente acknowledge financial support from Spanish ministry of Science
and Technology through grants SEJ-2005-02776, and both SEJ2006-14354 and BEC-2003-03965, respectively. |
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Keywords: | Futures trading Price discovery Destabilization |
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