Order Imbalance and the Dynamics of Index and Futures Prices

Fung, Joseph K. W.; Yu, Philip L. H.

doi:10.2139/ssrn.1008189

Cited by 6 publications

(21 citation statements)

References 48 publications

(41 reference statements)

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“…Indeed, as indicated by Roll et al (2007), the financial crisis suggested that market conditions can be severe and liquidity can decline or even disappear, implying that liquidity is more important during a financial crisis. According to the above discussion, if stock market liquidity affects basis risks and hedge ratios determine the overall risk and return characteristics of the hedged positions, it is expected in the present study that stock market liquidity affects the hedging performance of futures contracts through hedge ratios, especially for a bear market (Fung & Yu, 2007;Roll et al, 2007). This paper contributes to the published literature in two ways.…”

Section: Introductionmentioning

confidence: 67%

“…Roll et al (2007) report that the futures-cash basis is affected by spot market liquidity. Fung & Yu (2007) also suggest that stock market liquidity affects the error correction dynamics of index and futures prices. Moreover, Fung & Yu (2007) report that this relationship was stronger during the 1997 financial market crisis in Hong Kong.…”

Section: Introductionmentioning

confidence: 99%

“…Fung & Yu (2007) also suggest that stock market liquidity affects the error correction dynamics of index and futures prices. Moreover, Fung & Yu (2007) report that this relationship was stronger during the 1997 financial market crisis in Hong Kong. Indeed, as indicated by Roll et al (2007), the financial crisis suggested that market conditions can be severe and liquidity can decline or even disappear, implying that liquidity is more important during a financial crisis.…”

Section: Introductionmentioning

confidence: 99%

“…1 Meanwhile, Fung (2007) and Fung & Yu (2007) also indicate that stock market liquidity affects the dynamic relationship between stock and futures prices. Although previous studies examine the relationship between stock market liquidity and the futures-cash basis, no work has investigated the impact of stock market liquidity on hedging performance.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Hedging Performance and Stock Market Liquidity: Evidence from the Taiwan Futures Market

Lee

Chien

2010

Asia-Pac J of Fin Stud

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This paper examines the impact of stock market liquidity on the hedging performance of stock index futures, and extends the conditional OLS model described by Miffre [Journal of Futures Markets 24 (2004) 945] by including stock market liquidity in the regression model. The empirical results indicate that information regarding stock market liquidity is useful in predicting the optimal hedge ratio under different market conditions. In a bear market, the conditional OLS model with stock market liquidity provides the best hedging performance for the out-of-sample period. Although the OLS model outperforms the generalized autoregressive conditional heteroskedasticity and conditional OLS models for the out-of-sample period in a bull market, the conditional OLS model with stock market liquidity outperforms the conditional OLS model without stock market liquidity in terms of downside risks (lower partial moment).

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Section: Introductionmentioning

confidence: 67%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Hedging Performance and Stock Market Liquidity: Evidence from the Taiwan Futures Market

Lee

Chien

2010

Asia-Pac J of Fin Stud

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“…In addition, Hang Seng Index (HSI) futures are among the most liquid contracts in the world. HSI represents over 75% of the total market capitalization of stocks listed in Hong Kong (Fung and Yu, 2007). This paper uses stochastic dominance (SD) methodology to identify dominant types 3 of risk preferences in the Hong Kong's spot and futures markets.…”

Section: Introductionmentioning

confidence: 99%

Stochastic Dominance and Investors’ Behavior towards Risk: The Hong Kong Stocks and Futures Markets

Lam

Wong

2010

SSRN Journal

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This paper applies stochastic dominance (SD) tests to examine the dominance relationships between the futures and spot markets in Hong Kong. We also analyze the preferences for the risk averters, risk seekers, prospect investors, and Markowitz investors with further in dept of their positive and negative domains in these markets. We find that for the risk averters, spot dominates futures while for the risk seekers, futures dominate spot. This implies that the risk averters prefer to buy indexed stocks, while risk seekers are attracted to long index futures to maximize their expected utilities, but not necessary their wealth. We also conclude that in general, the prospect investors prefer spot in the positive domain and prefer futures in the negative domain while the Markowitz investors prefer spot in the negative domain and prefer futures in the positive domain.

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Commonality in trading activity and futures‐cash basis: Evidence from the Taiwan futures and stock markets

Lee

Chien

Liao

2011

Journal of Futures Markets

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This study examines commonality in trading activity by various types of institutional investors across futures and stock markets, and the dynamic relationship between the common factors in trading activity and the futures-cash basis. The empirical results provide evidence of commonality in trading activity by various types of institutional investors across futures and stock markets. Additionally, this study finds that the first principal component of trading activity is most closely related to the futures trading of mutual funds. Moreover, the empirical results indicate that the first principal component of trading activity and mutual funds' futures trading Granger-cause the futures-cash basis and vice versa. Finally, the results of the impulse response functions show that the first principal component of trading

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Order Imbalance and the Dynamics of Index and Futures Prices

Cited by 6 publications

References 48 publications

Hedging Performance and Stock Market Liquidity: Evidence from the Taiwan Futures Market

Hedging Performance and Stock Market Liquidity: Evidence from the Taiwan Futures Market

Stochastic Dominance and Investors’ Behavior towards Risk: The Hong Kong Stocks and Futures Markets

Commonality in trading activity and futures‐cash basis: Evidence from the Taiwan futures and stock markets

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