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Return Autocorrelations on Individual Stocks and Corresponding Futures: Evidence from Australian, Hong Kong, and United Kingdom Markets

Author

Listed:
  • Donald Lien

    (Department of Economics, University of Texas at San Antonio, San Antonio, Texas 78249-0633, USA)

  • Li Yang

    (School of Banking & Finance, University of New South Wales, Sydney 2052, Australia)

Abstract

In this study, we investigate the daily relationships between returns on individual stocks and their corresponding futures contracts in Australian, Hong Kong, and United Kingdom markets. We find that, at the beginning of the life of a futures market, autocorrelation of futures returns is similar to that of individual stock returns. As the market becomes mature, the autocorrelation of futures returns behaves differently from the autocorrelation of stock returns. Through the linkage between return autocorrelations and trading volume, we find that a larger trading volume depresses the return autocorrelation and shrinks the differences of return autocorrelation between stock and its futures. In addition, futures trading volume has more significant impact on the patterns of return autocorrelations than the stock trading volume. The effect is non-linear in the sense that it is much more prominent during high futures trading periods. Summary of these findings suggests that the difference of return autocorrelations between an individual stock and its futures contract is due to low trading activities of futures.

Suggested Citation

  • Donald Lien & Li Yang, 2004. "Return Autocorrelations on Individual Stocks and Corresponding Futures: Evidence from Australian, Hong Kong, and United Kingdom Markets," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 397-422.
    • Handle: RePEc:wsi:rpbfmp:v:07:y:2004:i:03:n:s0219091504000160
    DOI: 10.1142/S0219091504000160
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    Keywords

    Return autocorrelation patterns; relation between individual stock and its futures markets; trading volume; JEL Classification G15; JEL Classification G13;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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