The lead-lag relationship between equities and stock index futures markets around information releases

Abstract

This paper documents a strengthening in the lead of stock index futures returns over stock index returns around macroeconomic information releases. Some evidence of a strengthening in feedback from the equities market to the futures market and weakening in the lead of the futures market around major stock‐specific information releases is also provided. This is consistent with the hypothesis that investors with better marketwide information prefer to trade in stock index futures while investors with stock‐specific information prefer to trade in underlying stocks. A small weakening in the contemporaneous relationship between stock index futures returns and stock index returns around both types of releases is also documented. This is consistent with disintegration in the relationship between the two markets associated with noise induced volatility. One by‐product of this study is new comparative evidence on the performance of adjustments for infrequent trading of index stocks based on a commonly used ARMA technique versus recalculation of the stock index using quote midpoints. The results suggest that the quote midpoint index performs at least as well as the ARMA adjusted index across the entire sample period, as well as around the different types of information releases. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:467–487, 2000

Single-stock futures: Evidence from the Indian securities market

“…The panel represents the information share on a monthly basis, and we then compute the average over all months to get the overall information share for entire period. Frino, Walter, and West (2000) document that investors with better market-wide information are more likely to trade in stock index futures, strengthening the price discovery role of futures market significantly around macroeconomic news releases. Bozcuk and Lasfer (2005) find that the type of investors behind the trades, the combination of the size of the trades, and the investors' resulting level of ownership are major determinants of the price impact.…”

Market Architecture and Nonlinear Dynamics of Australian Stock and Futures Indices

“…5 We trace the impacts of shocks to futures and stocks on movements in the basis, assuming that the basis is initially zero and the market is in equilibrium. The size of the shocks that we consider are approximately one standard deviation of the basis (about 0.07) and two standard deviations, and given that it is often believed that shocks to the stock index are ®rm speci®c and different from shocks to the futures index which re¯ect macroeconomic shocks (see Frino et al, 2001), we consider two extreme cases. In the ®rst case a positive (negative) shock to the basis is caused purely by a positive (negative) shock in the futures market, and we call this sort of shock à macroeconomic' shock.…”

The informational impact of electronic trading systems on the FTSE 100 stock index and its futures contracts

“…Stoll and Whaley 1990;Chan 1992;Abhyankar 1995;Pizzi, Economopoulos, and O'Neil 1998;Booth, So, and Tse 1999;Frino, Walter, and West 2000). However, few papers have attempted to characterize the adjustment process to new information in a high frequency framework.…”