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     

Trading costs and price discovery across stock index futures and cash markets

The focus of this article is to test the trading cost hypothesis of price leadership, which predicts that the market with the lowest overall trading costs will react most quickly to new information. In an attempt to hold market microstructure effects constant and in contrast to previous studies, we examine intraday price leadership across the S&P 500, NYSE Composite, and MMI futures, and across the respective cash indexes—rather than between each futures and its associated cash index. We find that, among the futures, the S&P 500 exhibits price leadership over the other index futures, whereas among the cash indexes the MMI leads. Both findings are consistent with the trading cost hypothesis. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 475–498, 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     

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.     

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     

Rolling over stock index futures contracts

Derivative contracts have a finite life limited by their maturity. The construction of continuous series, however, is crucial for academic and trading purposes. In this study, we analyze the relevance of the choice of the rollover date, defined as the point in time when we switch from the front contract series to the next one. We have used five different methodologies in order to construct five different return series of stock index futures contracts. The results show that, regardless of the criterion applied, there are not significant differences between the resultant series. Therefore, the least complex method can be used in order to reach the same conclusions. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 28:684–694, 2009     

Volatility and trading demands in stock index futures

In this study we examine how volatility and the futures risk premium affect trading demands for hedging and speculation in the S&P 500 Stock Index futures contracts. To ascertain if different volatility measures matter in affecting the result, we employ three volatility estimates. Our empirical results show a positive relation between volatility and open interest for both hedgers and speculators, suggesting that an increase in volatility motivates both hedgers and speculators to engage in more trading in futures markets. However, the influence of volatility on futures trading, especially for hedging, is statistically significant only when spot volatility is used. We also find that the demand to trade by speculators is more sensitive to changes in the futures risk premium than is the demand to trade by hedgers. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:399–414, 2003     

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 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