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Lead-lag relationship between spot and futures stock indexes: Intraday data and regime-switching models

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  • Alemany, Nuria
  • Aragó, Vicent
  • Salvador, Enrique

Abstract

This paper analyzes the impact of arbitrage opportunity changes on the price discovery process between the DAX30 index and the DAX30 index future within a short time scale. To this end, we use 5-min data, regime-switching models and the regime-dependent impulse response function. The results unveil the presence of nonlinearities in the cointegrating vector and the shortcomings of relying on linear assumptions. We also find that the presence of arbitrage opportunities alters the nature of the lead-lag dynamics: the more arbitrage opportunities, the greater the leading role of the futures market and the more pronounced the impact of unexpected shocks on prices.

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  • Alemany, Nuria & Aragó, Vicent & Salvador, Enrique, 2020. "Lead-lag relationship between spot and futures stock indexes: Intraday data and regime-switching models," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 269-280.
    • Handle: RePEc:eee:reveco:v:68:y:2020:i:c:p:269-280
    DOI: 10.1016/j.iref.2020.03.009
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    More about this item

    Keywords

    Regime-switching models; Arbitrage opportunities; Lead-lag relationship; Intraday data;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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