SSRN-Do Stock Index Futures Prices Overreact?: An Event Study by Hun Park, Edward Pierzak, Hsiulang Chen

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Do Stock Index Futures Prices Overreact?: An Event Study

HUN Y. PARK
University of Illinois at Urbana-Champaign - Department of Finance
EDWARD F. PIERZAK
University of Illinois at Urbana-Champaign - Department of Finance
HSIU-LANG CHEN
University of Illinois at Chicago - Department of Finance

Abstract:
We examine a possible overreaction of the stock index futures rices to the quarterly announcements of a macroeconomic variable, GNP. The results indicate that when the GNP announcement constitutes the release of positive information, a significant underreaction of the futures market relative to the spot market prevails. With the release of negative information, the index futures contracts appear to underreact as well, however, this underreaction is not statistically significant. Furthermore, an analysis of relative trading volume shows that the underreaction of S&P 500 futures around the GNP announcement is not necessarily due to an illiquid market. The result of underreaction of the stock index futures prices is contradictory to the conventional wisdom that the futures market is more speculative, volatile, and thus more reactive to economic news than the spot market.

JEL Classifications: 14

Working Paper Series

Contact Information for HUN Y. PARK (Contact Author) Email address for HUN Y. PARK University of Illinois at Urbana-Champaign - Department of Finance 1206 South Sixth Street Urbana , IL 61820 United States 217-333-0659 (Phone) 217-244-3102 (Fax)
Contact Information for HSIU-LANG CHEN Email address for HSIU-LANG CHEN University of Illinois at Chicago - Department of Finance 601 South Morgan Street Room 2431 Chicago , IL 60607-7124 United States (312) 355-1024 (Phone)
Contact Information for EDWARD F. PIERZAK Email address for EDWARD F. PIERZAK University of Illinois at Urbana-Champaign - Department of Finance 1206 South Sixth Street 1206 South Sixth Street Urbana , IL 61820 United States

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