Price discovery in spot and futures markets: A reconsideration
AbstractWe reconsider the issue of price discovery in spot and futures markets. We use a threshold error correction model to allow for arbitrage opportunities to have an impact on the return dynamics. We estimate the model using quote midpoints, and we modify the model to account for time-varying transaction costs. We find that a) the futures market leads in the process of price discovery and that b) the presence of arbitrage opportunities has a strong impact on the dynamics of the price discovery process. --
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Bibliographic InfoPaper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 09-17 [rev.].
Date of creation: 2011
Date of revision:
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More information through EDIRC
price discovery; futures markets; threshold error correction; common factor weights;
Other versions of this item:
- Erik Theissen, 2012. "Price discovery in spot and futures markets: a reconsideration," The European Journal of Finance, Taylor & Francis Journals, vol. 18(10), pages 969-987, November.
- Theissen, Erik, 2009. "Price discovery in spot and futures markets: A reconsideration," CFR Working Papers 09-17, University of Cologne, Centre for Financial Research (CFR).
- Theissen, Erik, 2009. "Price discovery in spot and futures markets: A reconsideration," CFS Working Paper Series 2009/27, Center for Financial Studies (CFS).
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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