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Intraday Lead-Lag Relationships between the Futures-, Options and Stock Market

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  • Jong, F.C.J.M. de
  • Donders, M.W.M.

    (Tilburg University, Center for Economic Research)

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    Abstract

    In rational, efficiently functioning and complete markets, returns on derivative and underlying securities should be perfectly contemporaneously correlated.Due to market imperfections, one of these markets may reflect information faster.The use of high-frequency data and the choice for a small unit time interval to measure these lead-lag relations comes at the cost of some or many missing observations, causing traditional estimators to either under- or overestimate covariances and correlations.We use a new estimator to estimate lead-lag relationships between the cash AEX index, options and futures.We find that futures returns lead both options and cash index returns by approximately 10 minutes.The relationship between options and the cash market is not completely unidirectional

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    Bibliographic Info

    Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1996-108.

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    Date of creation: 1996
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    Handle: RePEc:dgr:kubcen:1996108

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    Web page: http://center.uvt.nl

    Related research

    Keywords: pricing; futures markets; stock markets; option markets;

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