An examination of the relationship between stock index cash and futures markets: A cointegration approach

Pizzi, Michael; Economopoulos, Andrew J.; O'Neill, Heather M.

doi:10.1002/(sici)1096-9934(199805)18:3<297::aid-fut4>3.0.co;2-3

Cited by 122 publications

(70 citation statements)

References 8 publications

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“…The cointegrating vector is taken to be t t F S − . This is included in a VECM, together with a constant term, and the specification is estimated over the full sample (see Pizzi, Economopoulos, andO'Neill (1998), Chu, Hsieh, and, Booth, So, and Tse (1999)). …”

Section: A Cointegration In Futures/spot Specificationsmentioning

confidence: 99%

Intraday Price Formation in US Equity Index Markets

Hasbrouck

2001

SSRN Journal

108

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/ SummaryThe market for US equity indexes has traditionally comprised floor-traded index futures contracts and the individual markets for the component stocks. This picture has been altered by the advent of exchange-traded funds (ETFs) that mirror the indexes, electronically-traded, small-denomination ("E-mini") futures contracts, and (for the S&P 500) a family of sector ETFs that break the index into nine components. This paper empirically investigates price discovery (price leadership) in this new environment. The specifications are estimated at very fine (up to one second) time resolution. The principal findings are as follows.• For the S&P 500 and Nasdaq-100 indexes, the index market comprises an ETF, a regular floor-traded futures contract and an E-mini futures contract. The paper finds that most of the price discovery for both indexes occurs in the E-mini markets: price changes in the E-mini futures prices generally lead those in the regular futures contracts and the ETFs.• The market in the S&P 400 MidCap index comprises only the ETF and the regular futures contract. Both securities contribute substantially to price discovery, but the ETF appears to dominate.• The sector ETFs can closely replicate the S&P 500 ETF. Nevertheless, trading activity across the sector ETFs varies considerably. The most actively traded sector (technology) contributes a modest amount to price discovery in the overall index. The other sector ETFs play only a minor role.

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Section: A Cointegration In Futures/spot Specificationsmentioning

confidence: 99%

Intraday Price Formation in US Equity Index Markets

Hasbrouck

2001

SSRN Journal

108

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“…Some authors (e.g. Fleming et al, 1996;Kempf and Korn, 1996;Pizzi et al, 1998) have used ARMA residuals rather than log returns when estimating the ECM. The problem with this approach is that it combines an error correction term directly derived from the index and futures price levels with the ARMA residuals in one model, thereby introducing a sort of inconsistency into the model.…”

Section: Introductionmentioning

confidence: 99%

Price discovery in spot and futures markets: a reconsideration

Theissen

2012

The European Journal of Finance

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Abstract:We reconsider the issue of price discovery in spot and futures markets. We use a threshold error correction model to allow for arbitrage opportunities to have an impact on the return dynamics.We estimate the model using quote midpoints, and we modify the model to account for time-varying transaction costs. We find that a) the futures market leads in the process of price discovery and that b) the presence of arbitrage opportunities has a strong impact on the dynamics of the price discovery process. Keywords:Price discovery, futures markets, threshold error correction, common factor weights JEL classification: G13, G14 Price Discovery in Spot and Futures Markets: A Reconsideration March 2011Abstract: We reconsider the issue of price discovery in spot and futures markets. We use a threshold error correction model to allow for arbitrage opportunities to have an impact on the return dynamics.We estimate the model using quote midpoints, and we modify the model to account for time-varying transaction costs. We find that a) the futures market leads in the process of price discovery and that b) the presence of arbitrage opportunities has a strong impact on the dynamics of the price discovery process.

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“…In addition to these findings, there are some studies which could not determine the conclusive role of any market but bi-directional causality. These studies have found bi-directional causality in spot and futures returns of S&P 500 and reveal that causality from futures to spot is stronger as compared to causality from spot to futures returns (Chan, 1992;De Jong and Nijman, 1997;Pizzi et al, 1998).…”

Section: Literature Reviewmentioning

confidence: 96%

Price discovery in Indian stock index futures market: new evidence based on intraday data

Inani

2017

IJICBM

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This study revisits price discovery process in Indian stock index futures market for spot and futures of S&P CNX Nifty, by using high-frequency one-minute time-interval data for the period from January 2011 to August 2015 to gain fresh insights. Stationarity and cointegration tests reveal that spot and futures prices are I (1) and cointegrated. Three different econometric methodologies -component share method of Gonzalo and Granger (1995), information share method of Hasbrouck (1995), and modified information share of Lien and Shrestha (2009) have been employed to determine the extent of price discovery contribution by spot and futures markets. The results reveal that futures market is performing its price discovery function which satisfies the transaction cost hypothesis. Also, these results support the notion that futures market is more efficient vis-à-vis spot market in India. Price discovery is a main function of futures market and has implications for asset pricing, portfolio allocation, investment strategy formation, and market efficiency. This study might be helpful for regulators and policymakers to form market structure policies and guidelines for equity markets.

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An examination of the relationship between stock index cash and futures markets: A cointegration approach

Cited by 122 publications

References 8 publications

Intraday Price Formation in US Equity Index Markets

Intraday Price Formation in US Equity Index Markets

Price discovery in spot and futures markets: a reconsideration

Price discovery in Indian stock index futures market: new evidence based on intraday data

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