Price Discoveries and Volatility Spillovers in S&P CNX Nifty Future and its Underlying Index CNX Nifty

2009 ◽  
Vol 34 (2) ◽  
pp. 41-56 ◽  
Author(s):  
Madhusudan Karmakar
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Spot Market ◽  
The Other ◽  
Future Market ◽  
Volatility Spillovers ◽  
Long Run ◽  
Cash Market ◽  
Cointegration Tests ◽  
First Moment

In a perfectly functioning world, every piece of information should be reflected simultaneously in the underlying spot market and its futures markets. However, in reality, information can be disseminated in one market first and then transmitted to other markets due to market imperfections. And, if one market reacts faster to information than the other, a lead-lag relation is observed The lead-lag relationship in returns and volatilities between spot and futures markets is of interest to academics, practitioners, and regulators. In India, there are very few studies which have investigated the lead-lag relationship in the first moment of the spot and futures markets This study investigates the lead-lag relationship in the first moment as well as the second moment between the S&P CNX Nifty and the Nifty future. It also investigates how much of the volatility in one market can be explained by volatility innovations in the other market and how fast these movements transfer between these markets. It conducts Multivariate Cointegration tests on the long-run relation between these two markets. It investigates the daily price discovery process by exploring the common stochastic trend between the S&P CNX Nifty and the Nifty future based on vector error correction model (VECM). It examines the volatility spillover mechanism with a bivariate BEKK model. Finally, this study captures the effects of recent policy changes in the Indian stock market. The results reveal the following: The VECM results show that the Nifty futures dominate the cash market in price discovery. The bivariate BEKK model shows that although the persistent volatility spills over from one market to another market bi-directionally, past innovations originating in future market have the unidirectional significant effect on the present volatility of the spot market. The findings of the study thus suggest that the Nifty future is more informationally efficient than the underlying spot market. These findings may provide insights on the information transaction and index arbitrage between the CNX Nifty and futures markets.

Does Index Futures Dominate Index Spot? Evidence from Taiwan Market

2002 ◽  
Vol 05 (02) ◽  
pp. 255-275 ◽  
Author(s):  
Ching-Chung Lin ◽  
Shen-Yuan Chen ◽  
Dar-Yeh Hwang ◽  
Chien-Fu Lin
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Stock Exchange ◽  
Impulse Response Function ◽  
Spot Market ◽  
Stock Index ◽  
Index Futures ◽  
Volatility Spillovers ◽  
Egarch Model ◽  
Intraday Data

By utilizing vector error correction model (VECM) and EGARCH model, this article uses 5-minute intraday data to examine the interaction of return and volatility between Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) and the newly introduced TAIEX futures. VECM model shows that there exists bi-directional Granger causality between index spot and index futures markets, but spot market plays a more important role in price discovery. The results of impulse response function and information share indicate that most of the price discovery happens in index spot market. The evidence of EGRACH shows that the impacts of spot and futures innovations are asymmetrical, and the volatility spillovers between spot and futures markets are bi-directional. However, the information flow from spot to futures is stronger. These results suggest that the TAIEX spot market dominates the TAIEX futures market in terms of return and volatility.

scholarly journals PRICE DISCOVERY AND VOLATILITY TRANSMISSION IN AUSTRALIAN REIT CASH AND FUTURES MARKETS

2016 ◽  
Vol 20 (2) ◽  
pp. 113-129 ◽  
Author(s):  
Ming-Te LEE ◽  
Shew-Huei KUO ◽  
Ming-Long LEE ◽  
Chyi Lin LEE
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Futures Market ◽  
Real Estate Investment Trust ◽  
Real Estate Investment ◽  
Index Futures ◽  
Volatility Transmission ◽  
Volatility Spillovers ◽  
Cash Market ◽  
The Relationship

This study examines the price discovery function and volatility spillovers in australian real estate investment trust (A-REIT) index futures and also investigates the effects of the global fi- nancial crisis (gfc) on these two features. as opposed to the general understanding of the relationship between the cash and the futures markets, the current study finds that the A-REIT cash market led the a-reIt futures market in price discovery and volatility transmission processes before the gfc. However, during the GFC, the two markets interacted bilaterally in terms of information flow, i.e., in- formation flowed in both directions. Furthermore, after the GFC, the futures market followed the cash market again, but less closely. These findings have broad implications for investors in property assets.

Does Commodity Derivatives Function Effectively? A lengthy Discussion

2021 ◽  
pp. 227797522098574
Author(s):  
Bhabani Sankar Rout ◽  
Nupur Moni Das ◽  
K. Chandrasekhara Rao
Keyword(s):  
Price Discovery ◽  
Spot Market ◽  
Futures Market ◽  
The Other ◽  
Volatility Spillover ◽  
Agricultural Commodities ◽  
Commodity Derivatives ◽  
Derivative Market ◽  
Negative Shock ◽  
Lengthy Discussion

The present work has been designed to intensely investigate the capability of the commodity futures market in achieving the aim of price discovery. Further, the downside of the cash and futures market and transfer of the risk to other markets has also been studied using VaR, and Bivariate EGARCH. The findings of the work point that the metal commodity derivative market helps in the efficient discovery of price in the spot market except for nickel. But, in the case of the agricultural commodities, the spot is found to be leading and thus there is no price discovery except turmeric. On the other hand, the volatility spillover is bidirectional for both agri and metal commodities except copper, where volatility spills only from futures to spot. Further, the effect of negative shock informational bias differs from commodity to commodity, irrespective of metal or agriculture.

Top three LNG buyers to search for alternative LNG pricing structure after paying a total cost premium of $56 billion for oil-indexed LNG contracts in 2019 and 2020 – how will this affect Australia as the number one supplier to this market?

2021 ◽  
Vol 61 (2) ◽  
pp. 412
Author(s):  
Sindre Knutsson
Keyword(s):  
Natural Gas ◽  
South Korea ◽  
Spot Market ◽  
Liquefied Natural Gas ◽  
The Other ◽  
Future Market ◽  
Total Cost ◽  
The Future

Increasing spreads between spot liquefied natural gas (LNG) and oil-indexed contracts have resulted in the world’s top three LNG buyers paying a cost premium of $33 billion in 2019 and 23 billion in 2020. The top three buyers are Japan, China and South Korea, which had a combined 151Mt of long-term LNG contracts indexed to oil in 2020. This cost premium shows what top Asian buyers are currently paying for the security of LNG supply through long-term oil-indexed contracts. However, it also shows the potential reward Asian buyers have if they manage to develop a liquid LNG pricing hub in Asia to which they can index their contracts. Japanese buyers’ efforts of increasing flexibility in contracts, both through take-or-pay agreements and destination flexibility and aims of growing the spot market, will increasingly support the liquidity of the LNG market. However, there will be resistance from the other side of the table, for where someone is paying a premium, or making a loss, someone is making money. 2020 was another year of plenty for LNG producers selling oil-indexed volumes to Asian markets. Australia is the largest seller of LNG to Japan, China and South Korea with over 60Mt of long-term LNG contracts indexed to oil in 2020. Australia has benefited from having their contracts indexed to oil, but what’s next? In this paper, Rystad Energy will discuss the future market for Australian LNG exports including development in LNG demand, contract trends and price spreads.

scholarly journals The Impact of Restrictive Measures on the Price Discovery Function of Stock Index Futures – Evidence From CSI 500 Stock Index Futures

2018 ◽  
Vol 9 (4) ◽  
pp. 117
Author(s):  
Maoguo Wu ◽  
Zhehao Zhu
Keyword(s):  
Price Discovery ◽  
Spot Market ◽  
Stock Index ◽  
Stock Index Futures ◽  
Future Market ◽  
Index Futures ◽  
The Future ◽  
The Difference ◽  
Restrictive Measures ◽  
The Impact

Restrictive measures implemented by governments have a great impact on the price discovery function of stock index futures. This study compares the price discovery function of CSI 500 stock index futures and CSI 500 stock index before and after the implementation of restrictive measures based on the reaction speed to new information, the price ratio of new information and the price contribution of both future market and spot market. It also analyzes the difference between the price discovery function of the future market and that of the spot market and thus proposes policy implications accordingly.Utilizing data of CSI 500 stock index futures in the period of the stock market crash, this study compares the price discovery function before and after the implementation of restrictive measures. By means of the VECM model and common factor analysis, it further investigates the difference in the price contribution of the two markets. Contributing to existing literature on the relationship between the future market and the spot market, this study explores the change in the price contribution of the two markets and therein studies the impact of restrictive measures on the price discovery function. Empirical evidence finds that before the implementation of restrictive measures, the price discovery function worked more efficiently, while, however, after the implementation of restrictive measures, the price discovery function did not work. Hence, stock index futures do assist in the price discovery of the spot market. In some special time periods, however, due to the impact of restrictive policies, the price contribution of the spot market exceeded that of the future market, implying that the price discovery function of the CSI 500 stock index future market is unstable.

Price Discovery Process and Volatility Spillover in Spot and Futures Markets: Evidences of Individual Stocks

2010 ◽  
Vol 35 (2) ◽  
pp. 49-62 ◽  
Author(s):  
T Mallikarjunappa ◽  
E M Afsal
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Spillover Effect ◽  
Spot Market ◽  
Futures Market ◽  
Discovery Process ◽  
Short Term ◽  
Asymmetric Volatility ◽  
Spot Volatility ◽  
Price Discovery Process

This paper analyses information-based superiority of markets mainly with an objective of exploring arbitrage opportunities. It attempts to determine the lead-lag relationship between spot and futures markets in the Indian context by using high frequency price data of twelve individual stocks, observed at one-minute interval. The study applies the concept of co-integration and establishes the spot-futures relationship using Vector Error Correction Mechanism (VECM) represented by EGARCH framework. To study the price discovery process in the two markets, five lags each of one-minute resolution for nine individual stocks and four lags for the remaining three stocks are chosen. The key results of the study are given below: There is a contemporaneous and bi-directional lead-lag relationship between the spot and futures markets. A feedback mechanism of short life is functional between the two markets. Price discovery occurs in both the markets simultaneously. There exists short-term disequilibrium that could be corrected in the next period. Volatility spillover from spot market to futures market is present in such a way that a decrease in spot volatility leads to a decrease in futures volatility. Volatility shocks are asymmetric and persistent in both the markets. Spillover from futures market to spot market is not significant. Neither spot nor futures assume a considerable leading role and neither of the markets is supreme in price discovery. In the case of 33.33 per cent of spot values and 33.33 per cent of futures values, there exists short-term disequilibrium that could be corrected in the next period by decreasing the prices. Spot market volatility spills over to futures market in most of the cases (66.66 %) and a decrease in spot volatility brings about a decrease in futures volatility in 50 per cent of the cases. Spillover effect from futures to spot market is present and significant in 91.66 per cent of stocks and is more than the spillover effect from spot to futures (50% valid cases). The markets are highly integrated. Asymmetric behaviour of volatility shocks is mixed in both the markets. Asymmetric volatility is detected in 50 per cent of the cases of spot market and 58.33 per cent cases of futures market. Stocks exhibiting asymmetric volatility show more sensitivity to negative shocks. There are no cases of market becoming more volatile in response to good news.

scholarly journals Relationship of Causality Between Spot And Futures Markets of Borsa Istanbul Index 30 and Dow Jones Industrial Average

2019 ◽  
Author(s):  
Letife Özdemir ◽  
Ercan Özen ◽  
Simon Grima
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Emerging Market ◽  
Spot Market ◽  
Spot Markets ◽  
Regression Equations ◽  
International Level ◽  
Causality Test ◽  
Futures Contract ◽  
Causality Relationship

Futures markets are mainly used as a tool for price discovery and for risk management on the spot markets and enable diversification for international portfolio investments. With this study we aim (1) to investigate the causality relationship between futures markets and spot market and (2) to examine the causality relationship between futures markets and spot markets in different countries. We are interested in both the futures markets - spot market relations and the interactions between the markets at international level. For variables we used the the BIST30 spot index and BIST30 futures contract representing the Borsa Istanbul market and the Dow-Jones 30 index and Dow-Jones 30 futures contract, which are the most important indices representing the US markets. Daily closing price data for the period between 2nd January, 2009 and 18th June, 2018 were analyzed using correlation, unit root test, causality test and regression equations. The results of the study show that the futures markets continue their price discovery role for both the spot markets and futures markets and are influential on other futures and spot markets at international level. These findings are important for investors wanting to invest in Turkey and in similarly considered emerging market economies. It will help investors take informed decisions by providing them with a more efficient price estimations utilizing the futures markets.

A Comparison of Hedge Effectiveness and Price Discovery between TAIFEX TAIEX Index Futures and SGX MSCI Taiwan Index Futures

2002 ◽  
Vol 05 (02) ◽  
pp. 277-300 ◽  
Author(s):  
Shen-Yuan Chen ◽  
Ching-Chung Lin ◽  
Pin-Huang Chou ◽  
Dar-Yeh Hwang
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Spot Market ◽  
Ratio Test ◽  
Variance Ratio ◽  
Index Futures ◽  
Hedging Effectiveness ◽  
Daily Data ◽  
Relationship Of ◽  
The Bayesian Approach

This article uses daily data from July 21, 1998 to July 31, 2000 to examine the hedging effectiveness, price behavior, and lead-lag relationship of SGX MSCI Taiwan index futures and TAIFEX TAIEX futures. By applying the Bayesian approach using Gibbs sampler, we find that TAIFEX index futures has a better hedging performance. A variance ratio test reveals that mean reversion and negative correlation of returns exist in SGX index futures. Only TAIFEX TAIEX futures is cointegrated with TAIEX spot. The uni-directional Granger causality between the two futures markets and spot market are from SGX to TAIEX and from TAIEX to TAIFEX. In terms of price discovery, SGX MSCI Taiwan index futures play a more important role than TAIFEX TAIEX futures.

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