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.

Volatility Spillover between the KOSPI 200 Spot and Futures Markets Using the VECM-DCC-GARCH Model

2011 ◽  
Vol 19 (3) ◽  
pp. 233-249
Author(s):  
Sang Hoon Kang ◽  
Seong-Min Yoon
Keyword(s):  
Information Flow ◽  
Futures Markets ◽  
Price Discovery ◽  
Spillover Effects ◽  
Spot Market ◽  
Futures Market ◽  
Market Volatility ◽  
Futures Contracts ◽  
Volatility Spillover ◽  
Asymmetric Volatility

This paper investigates the price discovery, volatility spillover, and asymmetric volatility spillover effects between the KOSPI 200 market and its futures contracts market. The investigation was performed using the VECM-DCC-GARCH approach. In the case of returns, we found a significant unidirectional information flow from the futures market to the spot market; this implies that the KOSPI 200 futures market plays an important role on the price discovery in the spot market. In addition, we found a strong bi-directional casualty involving the volatility interaction between the spot and futures markets; this implies that market volatility originating in the spot market will influence the volatility of the futures market and vice versa. We also found strong asymmetric volatility spillover effects between the two markets.

A Study on the Price Discovery in Korea Stock Index Markets: KODEX200, KOSPI200, and KOSPI200 Futures

2009 ◽  
Vol 17 (3) ◽  
pp. 67-97
Author(s):  
Seok-Kyu Kang
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Multivariate Garch ◽  
Stock Index ◽  
Reverse Direction ◽  
Discovery Process ◽  
Vector Error Correction ◽  
Price Series ◽  
Auto Regressive ◽  
Price Discovery Process

This paper examines the price discovery process among the Korea stock index markets using the vector error correction model (VECM) and the multivariate generalized auto regressive conditional heteroskedasticity (M-GARCH) model. The minute-by-minute price series of the KOSPI200 index, KOSPI200 futures, and KODEX200 are cointegrated. The empirical results are summarized as follows: First, VECM estimation results indicate that when the cointegrating relationship is perturbed by the arrival of ntis, the KODEX200(ETF) does not adjusted to restore equilibrium. This is the task of the KOSPI200 futures and spot. These two index securities use the KODEX200 to represent the ntioequilibrium price, with the KOSPI200 futures responding faster than the KOSPI200 spot. When the cointegrating relationship betweeiesOSPI200 spot and futues is perturbed by the arrival of ntis, the KOSPI200 spot does adjusted to restore equilibrium. Next, the results from the multivariate GARCH modes indicate that the volatilities of esOSPI200 spot and futures markets suggest unidirectiona1volatility spillover from KOSPI200 futures to KOSPI200 spot. KODEX200(ETF) volatilities spill over bothesOSPI200 spot and futures markets. and this happen in the reverse direction with a strong effect from the KODEX200 to KOSP200 futures and spot. The overall findings indicate that the KODEX200(ETF) market dominates KOSPI200 futures and spot in the price discovery process. The regulation of Instutional traders on trading on futures markets explains its superior price discovery function.

The Price Discovery Processes in China, India, and Russia’s Stock Index Futures Markets

2021 ◽  
pp. 2150020
Author(s):  
Qingfeng Wilson Liu ◽  
Hui Sono ◽  
Wei Zhang
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Stock Index ◽  
Stock Index Futures ◽  
Discovery Process ◽  
Index Futures ◽  
China And India ◽  
Brics Countries ◽  
Regulatory Changes ◽  
Price Discovery Process

In this paper, we examine the price discovery patterns in the three BRICS countries’ stock index futures markets which were launched after 2000 – China, India, and Russia. We find the futures market dominates the price discovery process in China and India, but less so in Russia. A closer examination reveals the dynamic nature of the price discovery process, and the significant impacts on futures’ price discovery functions from China’s regulatory changes in September 2015 and Russia’s economic sanctions in March 2014. The results also show a more balanced and bidirectional volatility spillover between futures and spots in China and India than in Russia.

Domestic and International Information Linkages between Gold Spot and Futures Markets: An Empirical Study for India

Metamorphosis ◽  
2018 ◽  
Vol 17 (1) ◽  
pp. 1-17
Author(s):  
Mala Dutt ◽  
Sanjay Sehgal
Keyword(s):  
Information Transmission ◽  
Price Discovery ◽  
Spot Market ◽  
Discovery Process ◽  
Commodity Exchange ◽  
Volatility Spillovers ◽  
Gold Futures ◽  
Information Linkages ◽  
Price Discovery Process ◽  
International Exchanges

This article examines information linkages between gold spot market in India and gold futures at India’s Multi Commodity Exchange (MCX) and five international platforms [i.e., Commodity Exchange (COMEX), Dubai Gold and Commodity Exchange (DGCX), Tokyo Commodity Exchange (TOCOM), Hong Kong Exchange (HKE) and Singapore Mercantile Exchange (SMX)] from August 2008 to March 2015. Cointegration procedure and vector error correction model (VECM), supported by Granger causality, are employed to study price discovery process, and bivariate EGARCH-BEKK model is used to examine volatility spillover process. At domestic level, spot market dominates the futures in information transmission process. Internationally, DGCX leads all other exchanges in price discovery process, while COMEX leads in volatility spillovers. In price discovery, MCX leads only TOCOM till August 2013, while price discovery is absent thereafter. In volatility spillovers, MCX dominates TOCOM and HKE till this period and only HKE afterwards. Thus, information linkages between MCX and international exchanges appear to have been impacted severely since August 2013. The study highlights the need to re-establish price and volatility linkages between Indian and international exchanges, and also provides significant suggestions for policymakers. The study is relevant for investors, researchers and the academia. It contributes to market efficiency and information transmission literature for commodity markets.

scholarly journals Price Discovery in Agricultural Markets

2020 ◽  
Vol 23 (1) ◽  
pp. 53-69
Author(s):  
Keshab Shrestha ◽  
Ravichandran Subramaniam ◽  
Thangarajah Thiyagarajan
Keyword(s):  
Futures Markets ◽  
Price Discovery ◽  
Business Leaders ◽  
Agricultural Markets ◽  
Discovery Process ◽  
Agricultural Commodities ◽  
Information Share ◽  
Generalized Information ◽  
Price Discovery Process

In this study, we empirically analyze the contribution of futures markets to the price discovery process for seven agricultural commodities using the generalized information share proposed by Lien and Shrestha (2014) and component share based on the permanent-temporary decomposition proposed by Gonzalo and Granger (1995). We find that most of the price discovery takes place in the futures markets with the exception of cocoa. Our results show that futures markets play an important role in price discovery process. These results are important to academicians, practitioners, policymakers as well as business leaders.

Functional Effectiveness of Commodity Futures Market: A Comparative Assessment of Agricultural and Metal Commodities

Paradigm ◽  
2021 ◽  
Vol 25 (1) ◽  
pp. 42-60
Author(s):  
Bhabani Sankar Rout ◽  
Nupur Moni Das ◽  
K. Chandrasekhara Rao
Keyword(s):  
Price Discovery ◽  
Investment Decision ◽  
Futures Market ◽  
Comparative Assessment ◽  
Discovery Process ◽  
Causality Test ◽  
Long Run ◽  
Short Run ◽  
Vecm Granger Causality ◽  
Price Discovery Process

The study focuses on examining the price discovery process, short run disturbances and hedging mechanism of agricultural and metal commodities futures market for the period January 2010 to December 2018. Contango and normal backwardation have also been taken into deliberation for select commodities which are traded in MCX and NCDEX, India which is a valuable addition to the existing body of literature in derivatives market. Johansen’s co-integration, VECM, Granger causality test and OLS are employed for understanding the price discovery and constant hedging for select commodities. Further, existence contango and normal backwardation have been observed by comparing the spot and futures prices. It has been found that spot market is acting as a leader in the longer period and laggard in short run investors can be benefitted to take short run or long run investment decision.

The Cross-Border Price Discovery and the Shanghai-Hong Kong Stock Connect

2021 ◽  
pp. 13-28
Author(s):  
Chun-I Lin ◽  
Kuan-Yi Chiang ◽  
Ming-Chih Lee ◽  
Yen-Hsien Lee
Keyword(s):  
Hong Kong ◽  
Futures Markets ◽  
Price Discovery ◽  
Jel Classification ◽  
Discovery Process ◽  
Speed Of Adjustment ◽  
Cross Border ◽  
The Cross ◽  
Price Discovery Process

This study mainly investigates the price discovery relationship between stock and futures markets and the cross-border price discovery relationship between Chinese and Hong Kong markets after the launch Shanghai-Hong Kong Stock Connect Progress. We find that this progress increases the speed of adjustment from the long-term equilibrium in the Chinese spot and futures markets. Moreover, the price discovery process mainly happens in Hong Kong’s spot and futures markets. Final, cross-border price discovery is from Hong Kong to China after this progress. JEL classification numbers: G15, G18 Keywords: Price Discovery, Shanghai-Hong Kong Stock Connect

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