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The Lead-Lag Relationship Between Cash and Stock Index Futures in a New Market

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Author Info

  • Manolis G. Kavussanos
  • Ilias D. Visvikis
  • Panayotis D. Alexakis

Abstract

"This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of the FTSE/ATHEX-20 and FTSE/ATHEX Mid-40 stock index futures and the underlying cash indices in the relatively new futures market of Greece. Empirical results show that there is a bi-directional relationship between cash and futures prices. However, futures lead the cash index returns, by responding more rapidly to economic events than stock prices. This speed is much higher in the more liquid FTSE/ATHEX-20 market. Moreover, results indicate that futures volatilities spill information over to the corresponding cash market volatilities in both investigated futures markets, but volatilities in the cash markets have no effect on the volatilities of futures markets. Overall, it seems that new market information is disseminated faster in the futures market compared to the stock market. This implies that the futures markets can be used as price discovery vehicles, providing further evidence that derivatives markets contribute to completing and stabilising capital markets in Greece. A further finding of this study is that futures volume and disequilibrium effects between cash and futures prices are important variables in the explanation of volatilities in cash and futures markets." Copyright (c) 2008 The Authors Journal compilation (c) 2008 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by European Financial Management Association in its journal European Financial Management.

Volume (Year): 14 (2008)
Issue (Month): 5 ()
Pages: 1007-1025

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Handle: RePEc:bla:eufman:v:14:y:2008:i:5:p:1007-1025

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Cited by:
  1. Edib Smolo & M. Kabir Hassan, 2011. "The potentials of musharakah mutanaqisah for Islamic housing finance," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 4(3), pages 237-258, August.
  2. Gresse, Carole & Deville, Laurent & De Séverac, Béatrice, 2014. "Direct and Indirect Effects of Index ETFs on Spot-Futures Pricing and Liquidity : Evidence from the CAC 40 Index," Economics Papers from University Paris Dauphine 123456789/7689, Paris Dauphine University.
  3. Mardi Dungey & Lyudmyla Hvozdyk, 2010. "Cojumping: Evidence from the US Treasury Bond and Futures Markets," NCER Working Paper Series 56, National Centre for Econometric Research, revised 20 Jul 2010.
  4. Yang Hou & Steven Li, 2013. "Price Discovery in Chinese Stock Index Futures Market: New Evidence Based on Intraday Data," Asia-Pacific Financial Markets, Springer, vol. 20(1), pages 49-70, March.
  5. Christos Floros, 2011. "Dynamic relationships between Middle East stock markets," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 4(3), pages 227-236, August.
  6. Kim, Jun Sik & Ryu, Doojin, 2014. "Intraday price dynamics in spot and derivatives markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 247-253.
  7. Shi, Jing & Xu, Tracy, 2013. "Price and volatility dynamics between securitized real estate spot and futures markets," Economic Modelling, Elsevier, vol. 35(C), pages 582-592.
  8. Yi-Tsung Lee & Wei-Shao Wu & Yun Yang, 2013. "Informed Futures Trading and Price Discovery: Evidence from Taiwan Futures and Stock Markets," Asia-Pacific Financial Markets, Springer, vol. 20(3), pages 219-242, September.
  9. Kang, Sang Hoon & Cheong, Chongcheul & Yoon, Seong-Min, 2013. "Intraday volatility spillovers between spot and futures indices: Evidence from the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(8), pages 1795-1802.

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