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A comprehensive examination of the compass rose pattern in futures markets

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  • Chun I. Lee
  • Kimberly C. Gleason
  • Ike Mathur

Abstract

This article provides a comprehensive examination of the existence, or the lack thereof, of the compass rose pattern in futures markets. The results from 118 futures contracts traded on 31 futures exchanges in 15 countries show that the compass rose pattern exists only in some futures contracts, in contrast to the robust existence among stocks documented by Crack and Ledoit (1996) and Chen (1997). Not all contracts on the same exchange exhibit this pattern. However, the pattern appears to be concentrated in some sectors. Although this evidence suggests that effective tick sizes that are different among contracts may be the determining factor for the existence of the pattern, contradicting evidence also suggests that there are other yet‐to‐be‐identified determinants at work. Furthermore, whereas the pattern is absent in the daily returns of primary stock index futures contracts such as the Major Market Index (MMI), it is very easily observable in the intraday returns of the same futures contract. The elusiveness of the pattern is further demonstrated in the returns on the cash S&P 500 Index, which does not exhibit the pattern until the focus is on returns that are within a 1% boundary. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 541–564, 1999

Suggested Citation

  • Chun I. Lee & Kimberly C. Gleason & Ike Mathur, 1999. "A comprehensive examination of the compass rose pattern in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(5), pages 541-564, August.
  • Handle: RePEc:wly:jfutmk:v:19:y:1999:i:5:p:541-564
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    Cited by:

    1. Antonios Antoniou & Constantinos E. Vorlow, 2004. "Price Clustering and Discreteness: Is there Chaos behind the Noise?," Papers cond-mat/0407471, arXiv.org.
    2. Antoniou, Antonios & Vorlow, Constantinos E., 2005. "Price clustering and discreteness: is there chaos behind the noise?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 348(C), pages 389-403.

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