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Introducing The Mini-Futures Contract On Ibex-35: Implications For Price Discovery And Volatility Transmission

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Author Info
Juan A. Lafuente () (Universitat Jaume I)
Manuel Illueca Muñoz (Universitat Jaume I)

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Abstract

In November 2001, the Spanish Official Exchange for Financial Futures and options launched the mini IBEX-35 futures contract. Following the seminal paper of Bessembider and Seguin (1992), this paper analyzes the effects of the introduction of the mini-futures contract in the Spanish stock index futures market. The objective of the paper is twofold: a) to analyze the potential destabilizing effect of the mini futures trading activity on the distribution of spot returns, and b) to test whether the mini futures contract significantly contributes to the price discovery process. A non-parametric approach is used to estimate the density function of spot return conditional to both spot and futures trading volume. Empirical findings using 15-minutes intraday data reveals that the mini futures trading activity enhances the price discovery function of the derivative market and does not destabilize spot prices. En Noviembre de 2001, el Mercado Oficial de Futuros y Opciones Financierosen España introdujo el contrato de futuros mini sobre el Ibex 35. En la línea del trabajode Bessembinder y Seguin (1992), este trabajo analiza el efecto de la introducción dedicho contrato sobre el mercado de contado. En particular, hay dos objetivosfundamentales en el trabajo: a) analizar la potencial desestabilización de la actividadnegociadora del mercado de derivados sobre el mercado de contado, y b) estudiar lacontribución del nuevo contrato al proceso de formación de precios del mercado decontado. Para ello, se procede a la estimación no paramétrica de la función de densidadde la rentabilidad del contado, condicional al volumen de negociación tanto el mercadode contado como de futuros. Los resultados empíricos a partir de datos intradía cada15 minutos revelan no solo que el nuevo contrato no tiende a desestabilizar el mercadode contado, sino que además contribuye de forma significativa al proceso de formaciónde precios en el mismo.

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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 2004-13.

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Length: 24 pages
Date of creation: May 2004
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasec:2004-13

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Keywords: Futuros mini; price discovery; desestabilización Ibex 35 Mini-futures; price discovery; destabilization; Ibex 35;

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  1. Shalen, Catherine T, 1993. "Volume, Volatility, and the Dispersion of Beliefs," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(2), pages 405-34. [Downloadable!] (restricted)
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  3. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August. [Downloadable!] (restricted)
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  4. Johnston, Elizabeth Tashjian & McConnell, John J, 1989. "Requiem for a Market: An Analysis of the Rise and Fall of a Financial Futures Contract," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 2(1), pages 1-23. [Downloadable!] (restricted)
  5. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January. [Downloadable!] (restricted)
  6. John Board & Gleb Sandmann & Charles Sutcliffe, 2001. "The Effect of Futures Market Volume on Spot Market Volatility," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 28(7&8), pages 799-819. [Downloadable!] (restricted)
  7. Bashtannyk, David M. & Hyndman, Rob J., 2001. "Bandwidth selection for kernel conditional density estimation," Computational Statistics & Data Analysis, Elsevier, vol. 36(3), pages 279-298, May. [Downloadable!] (restricted)
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  8. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(3), pages 473-506. [Downloadable!] (restricted)
  9. Campbell, John Y & Grossman, Sanford J & Wang, Jiang, 1993. "Trading Volume and Serial Correlation in Stock Returns," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 905-39, November. [Downloadable!] (restricted)
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  10. Lee, Yi-Tsung & Lin, Ji-Chai & Liu, Yu-Jane, 1999. "Trading patterns of big versus small players in an emerging market: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 23(5), pages 701-725, May. [Downloadable!] (restricted)
  11. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(01), pages 109-126, March. [Downloadable!]
  12. Kurov, Alexander & Lasser, Dennis J., 2004. "Price Dynamics in the Regular and E-Mini Futures Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(02), pages 365-384, June. [Downloadable!]
  13. Juan A. Lafuente & Manuel Illueca Muñoz, 2003. "The Effect Of Futures Trading Activity On The Distribution Of Spot Market Returns," Working Papers. Serie EC 2003-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  14. Harrison Hong, 2000. "A Model of Returns and Trading in Futures Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 959-988, 04. [Downloadable!] (restricted)
  15. Pennings, Joost M. E. & M. Leuthold, Raymond, 2001. "Introducing new futures contracts: reinforcement versus cannibalism," Journal of International Money and Finance, Elsevier, vol. 20(5), pages 659-675, October. [Downloadable!] (restricted)
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