scholarly journals Role of the Futures Market on Volatility and Price Discovery of the Spot Market: Evidence from Pakistan’s Stock Market

2006 ◽  
Vol 11 (2) ◽  
pp. 107-121 ◽  
Author(s):  
Safi Ullah Khan
Keyword(s):  
Stock Market ◽  
Alternative Hypothesis ◽  
Relevant Information ◽  
Spot Market ◽  
Futures Market ◽  
Spot Price ◽  
Vector Error Correction ◽  
Spot Prices ◽  
New Information

This paper focuses on the role of the financial futures market in the volatility of Pakistan’s stock market and determines whether the stock futures price is capable of providing some relevant information for predicting the spot price. The Generalized Autoregressive Conditional Heteroscedasticity (GARCH) approach is used to measure volatility in the spot and the futures market and to analyze the relationships between spot and futures market volatility. Causality and feedback relationships between the two markets are analyzed and determined through the Vector Error Correction Model (VECM). Empirical results support the evidence that spot prices generally lead the futures prices in incorporating new information, and that volatility in the futures market does not increase volatility in the spot market. Rather the study finds more consistent support for the alternative hypothesis that volatility in the futures market may be an outgrowth of the volatile spot market.

scholarly journals The Impact of Futures Price Volatility to Spot Market : Case of Coffee in Indonesia

2019 ◽  
Vol 15 (1) ◽  
pp. 1-15 ◽  
Author(s):  
Anis Erma Wulandari ◽  
Harianto Harianto ◽  
Bustanul Arifin ◽  
Heny K Suwarsinah
Keyword(s):  
Exchange Rate ◽  
Price Volatility ◽  
Spot Market ◽  
Futures Market ◽  
Spot Price ◽  
Price Risk ◽  
Price Inflation ◽  
Spot Prices ◽  
Futures Price ◽  
The Impact

Indonesia is the world 4th largest coffee producer after Brazil, Vietnam and Colombia with export potential and higher national consumption concluded in 2017 while the coffee production was relatively stagnant. This was led the producer to not only the production risk but also the price risk which then emphasize the importance of futures markets existence as price risk management. This study is performed to examine the impact of futures price volatility to spot market using ARCH-GARCH toward primary data of coffee futures and spot prices of 1172 trading days starting from January 2014 to June 2018. The ARCH-GARCH analysis result indicates that futures price volatility and monetary variables are impacting the volatility of spot price. Arabica spot price volatility is impacted by volatility of Arabica futures price, inflation and exchange rate while Robusta spot price is impacted by Robusta futures price volatility and exchange rate. This is confirming that futures market plays dominant role in spot price discovery. Local futures and spot prices are also found to be significantly influenced by volatility of offshore futures prices which indicates that emerging country futures market is actually influenced by offshore futures market which the price itself used as price reference.

scholarly journals The market impact of futures trading by the National Pension Service (NPS) of Korea

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mincheol Woo ◽  
Meong Ae Kim
Keyword(s):  
Stock Market ◽  
Institutional Investors ◽  
Spot Market ◽  
Futures Market ◽  
Market Impact ◽  
Futures Trading ◽  
Transaction Data ◽  
The World ◽  
The Impact

The National Pension Service (NPS) of Korea is one of the largest institutional investors in the world and it has been known as the market stabilizer in the Korean stock market. Nevertheless, it is hard to find the research about the impact of the NPS on the futures market. We investigated the effect of the NPS’s trading KOSPI200 futures on the returns, the liquidity and the volatility of the market using the recent ten years’ transaction data. The main findings are as follows. First, the NPS’s net investment flow (NIF) in the KOSPI200 futures market shows the predictability about the returns of both KOSPI200 futures and KOSPI200 spot index. Second, the NPS’s NIF in the KOSPI200 futures market improves the liquidity of the KOSPI market, where the transactions involved in both the spot market and the futures market occur. Third, the NPS’s NIF in the KOSPI200 futures market reduces the volatility of both the KOSPI200 futures market and the KOSPI market. Unlike the prior studies showing that our futures market tends to increase the volatility of the stock market through the volatility transfer, our finding suggests that the NPS’s trading KOSPI200 futures contributes to decreasing the volatility in both markets. To the best of the authors’ knowledge, this paper is the first study that investigates the impact of the NPS’s trading KOSPI200 futures on the KOSPI200 futures market and the stock market. It shows that the NPS plays a role of the market stabilizer in the futures market. In addition, the NPS’s trading KOSPI200 futures also affects the KOSPI stock market, stabilizing it in terms of both the liquidity and the volatility.

scholarly journals HOW EFFECTIVE IS FUTURES AS AN INSTRUMENT OF HEDGING AGAINST PRICE RISK? -A STUDY BASED ON SPOT AND FUTURE PRICES OF GOLD

2016 ◽  
Vol 4 (9) ◽  
pp. 143-150
Author(s):  
Shafeeque Muhammad ◽  
Thomachan
Keyword(s):  
Spot Market ◽  
Futures Market ◽  
Price Risk ◽  
Time Varying ◽  
Risk Hedging ◽  
Hedging Effectiveness ◽  
Cash Market ◽  
Hedge Ratios ◽  
Opposite Position

This paper examines the role of commodity futures market as an instrument of hedging against price risk. Hedging is the practice of offsetting the price risk in a cash market by taking an opposite position in the futures market. By taking a position in the futures market, which is opposite to the position held in the spot market, the producer can offset the losses in the latter with the gains in the former. Both static and time varying hedge ratios have been calculated using VECM-MGARCH model. Variance of return from hedge portfolio has been found to be low. Further hedging effectiveness has been observed to be around 12%.

The Role of Revenue in Firm Valuation

2008 ◽  
Vol 22 (2) ◽  
pp. 199-222 ◽  
Author(s):  
Uday Chandra ◽  
Byung T. Ro
Keyword(s):  
Model Misspecification ◽  
Relevant Information ◽  
Firm Valuation ◽  
Summary Measure ◽  
For Profit ◽  
Earnings Information ◽  
Technology Firms ◽  
New Information ◽  
Over Time

SYNOPSIS: This study examines the role of revenue in valuing firms beyond earnings and investigates whether this (1) is pervasive or limited to certain situations in which earnings may be less informative, (2) is sensitive to nonlinearity in the relation between returns and earnings, and (3) has changed over time. Our analysis indicates that revenue is useful both as a summary measure for valuation purposes and in conveying new information to the market, after controlling for earnings information. These results are not driven by technology firms, extreme earnings news or loss situations, or by model misspecification because of nonlinearities. The role of revenue in firm valuation is greater, and the role of earnings is smaller, in extreme earnings situations. We also find that revenue is more useful in summarizing the performance of technology firms and for profit observations. While the combined ability of revenue and earnings to summarize contemporaneous value-relevant information has remained stable over time, the new information conveyed by earnings has declined whereas the ability of revenue to incrementally convey new information has not diminished.

scholarly journals A Reexamination of Earnings Persistence on the Incremental Value Relevance of Earnings Levels and Earnings Changes

2018 ◽  
Vol 8 (2) ◽  
pp. 126
Author(s):  
Simon Yang
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Value Relevance ◽  
Relevant Information ◽  
Earnings Persistence ◽  
Incremental Value ◽  
Complementary Value ◽  
The U.S

This study reexaminesthe role of earnings persistence as to understand the incremental value relevance of earnings levels and earnings changes in explaining stock returns in the stock market of U.S. The results show that earnings levels and earnings changes together provide the higher value relevant information than each earnings variable alone in explaining stock returns. An increase in earnings persistence, approximated by different time-serial and firm-specific measures, puts more (less) value relevant weight on earning changes (levels). However, the complementary value relevance between earnings levels and earnings changes is somehow weak, implying that a possibly deteriorating valuation role for earnings levels and earnings changes may occur in the recent years for the U.S. stock market.

The Unbiasedness and Hedging Effectiveness in KOSPI200 Futures Market

2007 ◽  
Vol 15 (1) ◽  
pp. 73-100
Author(s):  
Seok Kyu Kang
Keyword(s):  
Risk Management ◽  
Risk Premium ◽  
Futures Market ◽  
Spot Price ◽  
Sample Period ◽  
Futures Prices ◽  
Spot Prices ◽  
Hedging Effectiveness ◽  
Futures Price ◽  
Rolling Windows

This study is to examine the unblasedness hypothesis and hedging effectiveness in KOSPI20() futures market. The unbiasedness and efficiency hypothesis is carried out using a cointegration methodology. And hedging effectiveness is measured by comparing hedging performance of the naive hedge model, OLS hedge model. and constant correlation bivariate GARCH (1. 1) hedge model based on rolling windows. The sample period covers from May. 3. 1996 to December. 8, 2005. The empirical results are summarized as follows: First, there exists the cOintegrating relationship between realized spot prices and futures prices of the 10 day. 22 day. 44 day. and 59 day prior to maturity. Second. futures prices of backward the 10 day. 22 day. 44 day from maturity provide unbiased forecasts of the realized spot prices. The KOSPI200 futures price is likely to predict accurately future KOSPI200 spot prices without the trader having to pay a risk premium for the privilege of trading the contract. Third. for shorter maturity. the futures price appears to be the best forecaster of spot price. Forth, bivariate GARCH hedging effectiveness outperforms the naive and OLS hedging effectiveness. The implications of these findings show that KOSPI200 futures market behaves as unbiased predictor of future spot price and risk management instrument of KOSPI200 spot portfolio.

scholarly journals Gold Exchange Traded Fund - Price Discovery and Performance Analysis

2018 ◽  
Vol 65 (4) ◽  
pp. 477-495
Author(s):  
Mathew Mallika ◽  
M. M. Sulphey
Keyword(s):  
Price Discovery ◽  
Tracking Error ◽  
Spot Price ◽  
Exchange Traded Funds ◽  
Vector Error Correction ◽  
Spot Prices ◽  
Deviation Analysis ◽  
Vector Error ◽  
And Performance ◽  
Exchange Traded Fund

Abstract The paper aims to examine the price discovery process and the performance of Gold Exchange Traded Funds especially with respect to two Gold ETFs, namely, Goldman Sachs Gold Exchange Traded Scheme (GoldBeEs) and SBI Gold Exchange Traded Scheme (SBIGETS), for the period 2009 – 2016. The study has employed Johansen cointegration and Johansen’s Vector Error Correction Model (VECM) for the price discovery analysis. The results of VECM reveal that the spot prices lead the Gold ETFs price during the study period. Tracking Error analysis shows that Gold ETFs have neither outperformed nor underperformed the spot price. Price Deviation analysis indicates that Gold ETFs are trading on an average lower than the spot price of gold. The entire analysis reveals that although the price discovery takes place in the spot market, Gold ETFs have performed as well as physical gold and the slight difference in price with that of Gold is only because of certain fees, which are applicable in the management of Gold ETFs.

An Empirical Analysis on Change in Price Discovery of KOSPI200 Futures Through Market Maturity Process

2006 ◽  
Vol 14 (2) ◽  
pp. 51-77
Author(s):  
Woo–baik Lee
Keyword(s):  
Error Correction ◽  
Trading Volume ◽  
Price Discovery ◽  
Futures Market ◽  
Spot Price ◽  
Sample Period ◽  
Information Share ◽  
Spot Prices ◽  
Intraday Data ◽  
Arbitrage Opportunity

This paper estimates the contribution of KOSPI200 futures to spot price discovery based on methodology of ‘information share’, which is suggested by Hasbrouck (1995). Using the intraday data covering sample period from year 1997 to 2003, I estimate information share with specification of Vector Error Correction Model. Main empirical findings are summarized as followings; First. estimate of information share is above 60 percent on average through-out the entire sample period. Second. the contribution of KOSPI200 futures to error correction increased during the recent year of sample period. showing that futures price have strong tendency to lead the spot price. Third. price discovery of KOSPI200 futures have significantly positive relationship with program trading volume and seems to increase under contango. These empirical findings explain the ‘market maturity effect’ that role of futures in spot price discovery enhances as cointegration between futures and spot prices strengthens and futures market countervails the arbitrage opportunity. In general. this paper presents that mature futures market Significantly contributes to spot market efficiency and price discovery process.

scholarly journals Optimal Ordering Policy for Supply Option Contract with Spot Market

2020 ◽  
Vol 2020 ◽  
pp. 1-11
Author(s):  
Xinru Hou ◽  
Xinsheng Xu ◽  
Haibin Chen
Keyword(s):  
Cost Benefit Analysis ◽  
Cost Benefit ◽  
Spot Market ◽  
Spot Price ◽  
Option Contract ◽  
Ordering Policy ◽  
Procurement Strategy ◽  
Optimal Ordering Policy ◽  
Optimal Ordering

This paper considers the procurement mechanism with two supply channels, namely, an option contract purchase and a spot market. For the mechanism, under the stochastic demand and the stochastic spot price, we consider the portfolio procurement with the spot trading liquidity and the option speculation respectively. To maximize the buyer’s profit, we establish two optimal portfolio procurement strategy models for those two scenarios. Based on the buyer’s cost-benefit analysis, we present a solution method to each model and provide an optimal ordering policy to the buyer. By the obtained results, we analyze the role of the spot trading liquidity and option speculation in a buyer’s expected profit. Some numerical experiments are presented to show the validity of the formulated models.

scholarly journals Positive Affect Modulates Flexibility and Evaluative Control

2011 ◽  
Vol 23 (3) ◽  
pp. 524-539 ◽  
Author(s):  
Nelleke C. van Wouwe ◽  
Guido P. H. Band ◽  
K. Richard Ridderinkhof
Keyword(s):  
Working Memory ◽  
Positive Affect ◽  
Relevant Information ◽  
Reactive Control ◽  
Error Related Negativity ◽  
New Information ◽  
Flexible Adaptation ◽  
Memory Content ◽  
Target Probe

The ability to interact with a constantly changing environment requires a balance between maintaining the currently relevant working memory content and being sensitive to potentially relevant new information that should be given priority access to working memory. Mesocortical dopamine projections to frontal brain areas modulate working memory maintenance and flexibility. Recent neurocognitive and neurocomputational work suggests that dopamine release is transiently enhanced by induced positive affect. This ERP study investigated the role of positive affect in different aspects of information processing: in proactive control (context maintenance and updating), reactive control (flexible adaptation to incoming task-relevant information), and evaluative control in an AX-CPT task. Subjects responded to a target probe if it was preceded by a specific cue. Induced positive affect influenced the reactive and evaluative components of control (indexed by the N2 elicited by the target and by the error-related negativity elicited after incorrect responses, respectively), whereas cue-induced proactive preparation and maintenance processes remained largely unaffected (as reflected in the P3b and the contingent negative variation components of the ERP).

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