Price discovery in the aluminum market

An extended version of the S. Beveridge and C. R. Nelson (1981) decomposition and a latent variable approach are used to examine how the noise content, and therefore the informativeness, of four aluminum prices that have been quoted at various times since 1970—the (now defunct) U.S. producer price, a transactions price reported in a trade journal, and the LME and Comex exchange prices. It was found that the start of aluminum futures trading in 1978 resulted in greater price transparency in the sense that the information content of transactions prices increased. LME prices quickly came to be more informative than published transactions prices. Although the initial Comex aluminum contract failed to attract liquidity and had low information content, the 1999 contract, trading currently, is as transparent as the LME contract. © 2005Wiley Periodicals, Inc. Jrl Fut Mark 25:967–988, 2005     

Price discovery in the treasury futures market

The paper conducts a regression analysis utilizing both futures and cash market prices and net orderflow to determine where price discovery takes place as well as the forces at play that influence the location. Specifically, given the strong theoretical linkage between the U.S. Treasury cash and futures markets, they compare how orderflow contributes to price discovery and analyze how and when information flows from one market to the other. How a number of environmental variables (trader type, financing rates, and liquidity) impact the information flows between these two markets is also considered. Their findings provide new evidence on the extent to which price discovery happens away from a primary market. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27: 1021–1051, 2007     

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     

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     

Price discovery in the German equity index derivatives markets

This article examines the intraday price discovery process among stock index, index futures, and index options in Germany using DAX index securities and intraday transactions data. The three index securities contribute to a common factor, but the spot index and index futures have substantially larger information shares than index options. Moreover, the returns of the three index securities exhibit feedback effects, with futures being dominant. Because the trading costs of the futures appear to be the lowest of the three and those of the options to be the highest, the results are consistent with the transaction cost hypothesis. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 619–643, 1999     

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     

Fractional cointegration and futures hedging

This article examines the performance of various hedge ratios estimated from different econometric models: The FIEC model is introduced as a new model for estimating the hedge ratio. Utilized in this study are NSA futures data, along with the ARFIMA-GARCH approach, the EC model, and the VAR model. Our analysis identifies the prevalence of a fractional cointegration relationship. The effects of incorporating such a relationship into futures hedging are investigated, as is the relative performance of various models with respect to different hedge horizons. Findings include: (i) Incorporation of conditional heteroskedasticity improves hedging performance; (ii) the hedge ratio of the EC model is consistently larger than that of the FIEC model, with the EC providing better post-sample hedging performance in the return–risk context; (iii) the EC hedging strategy (for longer hedge horizons of ten days or more) incorporating conditional heteroskedasticty is the dominant strategy; (iv) incorporating the fractional cointegration relationship does not improve the hedging performance over the EC model; (v) the conventional regression method provides the worst hedging outcomes for hedge horizons of five days or more. Whether these results (based on the NSA index) can be generalized to other cases is proposed as a topic for further research. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 457–474, 1999     

Price discovery in dual‐class shares across multiple markets

This paper proposes a new measure of price discovery that uses the spectral decomposition. The methodology is especially important in the context of large price systems, such as interest rate parities with spot and futures contracts or dual‐class shares in multiple markets. We employ high frequency data to study price discovery in dual‐class Brazilian stocks and their ADRs. We find that the foreign market is at least as informative as the home market and that shocks in the dual‐class premium entail a permanent effect in normal times, but transitory in periods of financial distress     

BitMEX bitcoin derivatives: Price discovery,informational efficiency,and hedging effectiveness

BitMEX is the largest unregulated bitcoin derivatives exchange, listing contracts suitable for leverage trading and hedging. Using minute-by-minute data, we examine its price discovery and hedging effectiveness. We find that BitMEX derivatives lead prices on major bitcoin spot exchanges. Bid–ask spreads, interexchange spreads, and relative trading volumes are important determinants of price discovery. Further analysis shows that BitMEX derivatives have positive net spillover effects, are informationally more efficient than bitcoin spot prices, and serve as effective hedges against spot price volatility. Our evidence suggests that regulators prioritize the investigation of the legitimacy of BitMEX and its contracts.     

Price discovery among SSE 50 Index-based spot,futures, and options markets

This paper studies the contribution of newly launched SSE 50 Index-based options and futures to price discovery. We find that the derivatives markets quickly begin exhibiting price leadership over the corresponding spot market, despite their short history; the information share from both derivatives markets rose from 59.84% in mid-2015 to 84.6% in mid-2017. Using substantial regulation changes during the sample period, we test the trading cost hypothesis. The increases in derivatives transaction costs do not immediately impede their roles in price discovery. Findings suggest that in nascent and immature markets, investors’ trading experience matters more than trading costs.     

Price discovery in electronic foreign exchange markets: The sterling/dollar market

This study finds that GLOBEX has a marginally lower Hasbrouck, J. (1995) information share than Reuters D3000 in the electronic sterling/dollar foreign exchange market when returns are computed from high frequency data on either midquotes or transaction prices. However, GLOBEX's information share declines sharply when returns are computed from a mixture of GLOBEX transaction prices and Reuters D3000 midquotes. This helps explain why prior studies using this latter methodology report relatively low information shares for GLOBEX in the yen/dollar market. Variations in GLOBEX's information share on an intraday basis can be explained by variations in relative liquidity, spreads and price volatility. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:590–606, 2010