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

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  • Frank De Jong
  • Monique W. M. Donders

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. JEL Classification: G13, G14

Suggested Citation

  • Frank De Jong & Monique W. M. Donders, 1998. "Intraday Lead-Lag Relationships Between the Futures-, Options and Stock Market," Review of Finance, European Finance Association, vol. 1(3), pages 337-359.
    • Handle: RePEc:oup:revfin:v:1:y:1998:i:3:p:337-359.
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    File URL: http://hdl.handle.net/10.1023/A:1009765322522
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    Citations

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    Cited by:

    1. Stanislaus Maier-Paape & Andreas Platen, 2016. "Lead–Lag Relationship Using a Stop-and-Reverse-MinMax Process," Risks, MDPI, vol. 4(3), pages 1-20, July.
    2. Nicolas Huth & Frédéric Abergel, 2011. "High Frequency Lead/lag Relationships - Empirical facts," Working Papers hal-00645685, HAL.
    3. Takaki Hayashi & Yuta Koike, 2017. "No arbitrage and lead-lag relationships," Papers 1712.09854, arXiv.org.
    4. Iman Adeinat & Naseem Al Rahahleh & Peihwang Wei, 2018. "Did crisis alter trading of two major oil futures markets?," Review of Derivatives Research, Springer, vol. 21(1), pages 45-61, April.
    5. Carol Alexander & Jaehyuk Choi & Heungju Park & Sungbin Sohn, 2020. "BitMEX bitcoin derivatives: Price discovery, informational efficiency, and hedging effectiveness," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(1), pages 23-43, January.
    6. José Da Fonseca & Riadh Zaatour, 2017. "Correlation and Lead–Lag Relationships in a Hawkes Microstructure Model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(3), pages 260-285, March.
    7. Chen, Chin-Ho, 2019. "Downside jump risk and the levels of futures-cash basis," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    8. Sarveshwar Kumar Inani, 2017. "Price discovery in Indian stock index futures market: new evidence based on intraday data," International Journal of Indian Culture and Business Management, Inderscience Enterprises Ltd, vol. 14(1), pages 23-43.
    9. Kapil Choudhary & Sushil Bajaj, 2013. "Price Discovery Process in Nifty Spot and Futures Markets," Global Business Review, International Management Institute, vol. 14(1), pages 55-88, February.
    10. Nicolas Huth & Fr'ed'eric Abergel, 2011. "High Frequency Lead/lag Relationships - Empirical facts," Papers 1111.7103, arXiv.org, revised Jan 2012.
    11. Yi-Tsung Lee & Wei-Shao Wu & Yun Yang, 2013. "Informed Futures Trading and Price Discovery: Evidence from Taiwan Futures and Stock Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 20(3), pages 219-242, September.
    12. Mohammad Imdadul Haque & Afsal Ellath Meethal, 2020. "Volatility and Information Behavior: A Study on Shariah Index and General Index حدة التقلب والاستجابة للمعلومات: دراسة مقارنة بين المؤشر الإسلامي والمؤشر التقليدي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 33(1), pages 21-33, January.
    13. Shailesh Rastogi & Chaitaly Athaley, 2019. "Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective," JRFM, MDPI, vol. 12(2), pages 1-15, June.
    14. Chaiyuth Padungsaksawasdi & Ali Parhizgari, 2017. "Major Currency ETFs and Their Associated Spot and Futures Rates," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(04), pages 1-32, December.
    15. Stanislaus Maier-Paape & Andreas Platen, 2015. "Lead-Lag Relationship using a Stop-and-Reverse-MinMax Process," Papers 1504.06235, arXiv.org.
    16. Tobias R. Rühl & Michael Stein, 2014. "The impact of financial transaction taxes: Evidence from Italy," Economics Bulletin, AccessEcon, vol. 34(1), pages 25-33.
    17. Hayashi, Takaki & Koike, Yuta, 2019. "No arbitrage and lead–lag relationships," Statistics & Probability Letters, Elsevier, vol. 154(C), pages 1-1.
    18. Chen, Wei-Peng & Chung, Huimin & Lien, Donald, 2016. "Price discovery in the S&P 500 index derivatives markets," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 438-452.
    19. Ren, Fei & Ji, Shen-Dan & Cai, Mei-Ling & Li, Sai-Ping & Jiang, Xiong-Fei, 2019. "Dynamic lead–lag relationship between stock indices and their derivatives: A comparative study between Chinese mainland, Hong Kong and US stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 513(C), pages 709-723.

    More about this item

    JEL classification:

    • 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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