The dynamics of the relationship between spot and futures markets under high and low variance regimes

Applied Stochastic Models in Business and Industry

Volumn 25, Issue 6, 2009, Pages 696-718

  Li, Ming Yuan Leon ^a  

^a NATIONAL CHENG KUNG UNIVERSITY   (Taiwan)

Author keywords

Lead lag relation; Markov switching model; Stock index futures; Volatility

Indexed keywords

EMERGING MARKETS; EMPIRICAL FINDINGS; FUTURES MARKET; HUNGARY; LEAD-LAG; MATURE MARKETS; PRICE ADJUSTMENT; PRICE DISCOVERY; SIGNAL VARIABLES; SPOT MARKET; SPOT PRICE; STOCK INDEX FUTURES; STOCK MARKET; SWITCHING MODEL; SWITCHING PROCESS; SWITCHING VECTOR; TURNING PROCESS;

COSTS; ERROR CORRECTION; SWITCHING; TURNING;

COMMERCE;

EID: 73349117476     PISSN: 15241904     EISSN: 15264025     Source Type: Journal    
DOI: 10.1002/asmb.753     Document Type: Article

References (44)

1. Herbst A, McCormack J, West E. Investigation of a leadlag relationship between spot indices and their futures contracts. Journal of Futures Markets 1987; 7:373-382.
2. Kawaller IG, Koch PD, Koch TW. The temporal price relationship between S & P 500 futures and the S & P 500 index. Journal of Finance 1987; 42:13091329.
3. Ng N. Detecting spot forecasts in futures prices using causality tests. Review of Futures Markets 1987; 6:250-267.
4. Stoll HR, Whaley RE. The dynamics of stock index and stock index futures returns. Journal of Financial and Quantitative Analysis 1990; 25:441-468.
5. Chan K. A further analysis of the leadlag relationship between the cash market and stock index futures market. Review of Financial Studies 1992; 5:123-152.
6. Ghosh A. Cointegration, error correction models: intertemporal causality between index, futures prices. Journal of Futures Markets 1993; 13:193-198.
7. Koch PD. Reexamining intraday simultaneity in stock index futures markets. Journal of Banking and Finance 1993; 17:1191-1205.
8. Wahab M, Lashgari M. Price dynamics and error correction in stock index and stock index futures markets: a cointegration approach. Journal of Futures Markets 1993; 13:711-742.
9. Brenner RJ, Kroner KF. Arbitrage, cointegration, testing the unbiasedness hypothesis in financial markets. Journal of Quantitative and Financial Analysis 1995; 30:23-42.
10. Tse Y. Price discovery and volatility spillovers in the DJIA index and futures markets. Journal of Futures Markets 1999; 19:911-930.
11. Subrahmanyam A. A theory of trading in stock index futures. Review of Financial Studies 1991; 4:17-51.
12. Boot AWA, Thakor AV. Security design. Journal of Finance 1993; 48:1349-1378.
13. Fleming J, Ostdiek B, Whaley RE. Trading costs and the relative rate of price discovery in stock, futures and options markets. Journal of Futures Markets 1996; 4:353387. (Pubitemid 126647722)
14. Chung YP. A transactions data test of stock index futures market efficiency and index arbitrage profitability. Journal of Finance 1991; 46:1791-1809.
15. Lau ST, McInish TH. Reducing tick size on the stock exchange of singapore. Pacific-Basin Finance Journal 1995; 3:485-496.
16. Stephan JA, Whaley RE. Intraday price changes and trading volume relations in the stock and stock option markets. Journal of Finance 1990; 45:191-220.
17. Fisher L. Some new stock market indexes. Journal of Business 1966; 39:191225.
18. Cohan KJ, Maier SA, Schwartz RA, Whitcomb DK. The Microstructure of Security Markets. Prentice-Hall: Englewood Cliffs, NJ, 1986.
19. Lo AW, MacKinlay AC. Stock market prices do not follow random walks: evidence from a simple specification test. Review of Financial Studies 1988; 1:41-66.
20. Abhyankar A. Return, volatility dynamics in the FTSE 100 stock index, stock index futures markets. Journal of Futures Markets 1995; 15:457-488.
21. Silvapulle P, Moosa IA. The relationship between spot and futures prices: evidence from the crude oil market. Journal of Futures Markets 1999; 19:175-193.
22. Hamilton JD, Susmel R. Autoregressive conditional heteroscedasticity and changes in regime. Journal of Econometrics 1994; 64:307-333.
23. Ramchand L, Susmel R. Volatility and cross correlation across major stock markets. Journal of Empirical Finance 1998; 5:397-416.
24. Ramchand L, Susmel R. Variance, covariances of international stock returns: the international capital asset pricing model revisited. Journal of International Financial Markets, Institutions and Money 1998; 8:39-57.
25. Li M-YL, Lin HW. Examining the volatility of Taiwan stock index returns via a three-volatility-regime Markovswitching ARCH model. Review of Quantitative Finance and Accounting 2003; 21:123-139.
26. Li M-YL. Volatility states and international diversification of international stock markets. Applied Economics 2007; 39:1867-1876.
27. Engle RF, Granger CWJ. Co-integration, error correction: representation, estimation, testing. Econometrica 1987; 55:251-276.
28. Filardo AJ. Business-cycle phases and their transitional dynamics. Journal of Business and Economic Statistics 1994; 12:299-308.
29. Marsh W. High-frequency Markov switching models in the foreign exchange market. Journal of Forecasting 2000; 19:123-134.
30. Luenberger DG. Linear and Nonlinear Programming. Addison-Wesley: Reading, MA, 1984.
31. Krolzig HM, Marcellinom M, Mizon GE. A Markov-switching vector equilibrium correction model of the UK labour market. Empirical Economics 2002; 27:233-254.
32. Francis N, Owyang MT. Monetary policy in a Markov-switching vector error-correction model: implications for the cost of disinflation and the price puzzle. Journal of Business and Economic Statistics 2005; 23:305-314.
33. Chan K, Chan KC, Karolyi AG. Intraday volatility in the stock index and stock index futures markets. Review of Financial Studies 1991; 4:657-684.
34. Martens M, Kofman P, Vorst TCF. A threshold error-correction model for intraday futures and index returns. Journal of Applied Econometrics 1998; 13:245-263. (Pubitemid 128352896)
35. Chen NF, Roll R, Ross SA. Economic forces and the stock market. Journal of Business 1986; 56:383-403.
36. Schwert GW, Seguin PJ. Heteroskedasticity in stock returns. Journal of Finance 1990; 45:1129-1155.
37. Chen NF. Financial investment opportunities and the macroeconomy. Journal of Finance 1991; 46:529-554.
38. Hamilton JD, Lin G. Stock market and the business cycle. Journal of Applied Econometrics 1996; 11:573-593.
39. Dwyer GPJ, Locke P, Yu W. Index arbitrage and nonlinear dynamics between the S & P 500 futures and cash. Review of Financial Studies 1996; 9:301-332.
40. Li M-YL. Clarifying interrelation dynamics between option and stock markets using threshold vector error correction model. Mathematics and Computers in Simulation 2008; 79:511-520.
41. Li M-YL. Dynamic hedge ratio for stock index futures: application of threshold VECM. Applied Economics 2008; 10.1080/00036840701721380.
42. Bollerslev T, Engle RF. Modeling the persistence of conditional variance. Econometric Reviews 1986; 5:1-50.
43. Diebold FX. Modeling the persistence of conditional variance: a comment. Econometric Reviews 1986; 5:51-56.
44. Lamoureux CG, Lastrapes WD. Persistence in variance, structural change and the GARCH model. Journal of Business and Economic Statistics 1990; 8:225-234.