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Measuring the dynamic lead–lag relationship between the cash market and stock index futures market

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  • Ma, Chaoqun
  • Xiao, Ru
  • Mi, Xianhua

Abstract

This paper develops three new nonparametric and nonlinear measurements for the dynamic lead–lag relationship between stock index futures and the cash index based on the dynamic time warping algorithm: one point measurement (e.g, for one minute) and two interval measurements (e.g, for one day). The simulation experiment shows the satisfactory performance of our measurements. The empirical evidence suggests that the distribution of the lead–lag times of the CSI 300 index futures relative to the cash index is right skewed with high kurtosis, and the index futures usually lead the cash index by 0–5 min but occasionally lag the cash index.

Suggested Citation

  • Ma, Chaoqun & Xiao, Ru & Mi, Xianhua, 2022. "Measuring the dynamic lead–lag relationship between the cash market and stock index futures market," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322002008
    DOI: 10.1016/j.frl.2022.102940
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    References listed on IDEAS

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    1. Manolis G. Kavussanos & Ilias D. Visvikis & Panayotis D. Alexakis, 2008. "The Lead‐Lag Relationship Between Cash and Stock Index Futures in a New Market," European Financial Management, European Financial Management Association, vol. 14(5), pages 1007-1025, November.
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    4. Francis In & Sangbae Kim, 2006. "The Hedge Ratio and the Empirical Relationship between the Stock and Futures Markets: A New Approach Using Wavelet Analysis," The Journal of Business, University of Chicago Press, vol. 79(2), pages 799-820, March.
    5. Chan, Kalok, 1992. "A Further Analysis of the Lead-Lag Relationship between the Cash Market and Stock Index Futures Market," The Review of Financial Studies, Society for Financial Studies, vol. 5(1), pages 123-152.
    6. Jiang, Tao & Bao, Si & Li, Long, 2019. "The linear and nonlinear lead–lag relationship among three SSE 50 Index markets: The index futures, 50ETF spot and options markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 525(C), pages 878-893.
    7. Kawaller, Ira G & Koch, Paul D & Koch, Timothy W, 1987. "The Temporal Price Relationship between S&P 500 Futures and the S and P 500 Index," Journal of Finance, American Finance Association, vol. 42(5), pages 1309-1329, December.
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