IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v27y2007i12p1129-1157.html
   My bibliography  Save this article

Order imbalance and the dynamics of index and futures prices

Author

Listed:
  • Joseph K.W. Fung
  • Philip L.H. Yu

Abstract

This study uses transaction records of index futures and index stocks, with bid/ask price quotes, to examine the impact of stock market order imbalance on the dynamic behavior of index futures and cash index prices. Spurious correlation in the index is purged by using an estimate of the “true” index with highly synchronous and active quotes of individual stocks. A smooth transition autoregressive error correction model is used to describe the nonlinear dynamics of the index and futures prices. Order imbalance in the cash stock market is found to affect significantly the error correction dynamics of index and futures prices. Order imbalance impedes error correction particularly when the market impact of order imbalance works against the error correction force of the cash index, explaining why real potential arbitrage opportunities may persist over time. Incorporating order imbalance in the framework significantly improves its explanatory power. The findings indicate that a stock market microstructure that allows a quick resolution of order imbalance promotes dynamic arbitrage efficiency between futures and underlying stocks. The results also suggest that the unloading of cash stocks by portfolio managers in a falling market situation aggravates the price decline and increases the real cost of hedging with futures. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:1129–1157, 2007

Suggested Citation

  • Joseph K.W. Fung & Philip L.H. Yu, 2007. "Order imbalance and the dynamics of index and futures prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(12), pages 1129-1157, December.
    • Handle: RePEc:wly:jfutmk:v:27:y:2007:i:12:p:1129-1157
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Volkova Anna V., 2016. "Governability Of The State And Inclusive Growth As The Landmarks For Public Policy In Modern Russia," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 1, April.
    2. Ermakov Yuri & Krasnikova Tatiana S., 2018. "New Public Management: Principles, Advantages And Disadvantages," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 1, April.
    3. Natalia A. Pashkus & Margareth V. Pashkus, 2016. "Features Ofb Breakthrough Positioning Art Objects," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 1, April.
    4. Surgikova Anna Vladimirovna & Ermakov Yuri & Kirillovskaya Alla A., 2016. "Modern Organizations In The Sphere Of Culture: From Resource Approach To Benchmarking," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 1, April.
    5. Tuliakova Irina R., 2016. "Assessment Of Competitiveness Of Shipbuilding Industry In Russia," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 2, August.
    6. Tatiana V. Kotsofana, 2018. "The Driving Forces Of Inflation And The Mechanisms For Their Implementation In The Russian Economy," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 1, April.
    7. Krasnikova Tatiana S., 2015. "Agro Tourism Potential Of The Omsk Region: Analysis And Assessment Of The Prospects Of Development," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 4, December.
    8. Babicheva E.E., 2015. "New Economy: Approaches, Features, Social Sphere Development," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 2, May.
    9. Ignatova Anna M., 2016. "The Use Of The Project Method In Public Administration In Modern Russia," Annals of marketing-mba, Department of Marketing, Marketing MBA (RSconsult), vol. 1, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:27:y:2007:i:12:p:1129-1157. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.