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An Alternative Specification for Intraday Simultaneity in Spot and Futures Markets

QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol. 37 No. 3, Fall 1997

Posted: 24 Sep 1997  

Jeffrey M. Mercer

Texas Tech University - Department of Finance

Abstract

Recent research demonstrates the importance of modeling intraday dynamic price relationships using high-frequency transactions data as simultaneous equations models to account for simultaneity in futures and spot prices. Motivated by theoretical and econometric considerations, this paper presents an alternative specification that accounts for both simultaneity and prior deviations from any long-run pricing association between the two price series. A comparison of the specification to prior work indicates that for the specific data examined, prior specifications fail to account for a significant component in these market microstructure relationships. Further, prior models are not robust to the misspecification, and when it is considered, an alternative view of intraday simultaneity in stock index futures markets is provided.

JEL Classification: C32, G12, G13

Suggested Citation

Mercer, Jeffrey M., An Alternative Specification for Intraday Simultaneity in Spot and Futures Markets. QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol. 37 No. 3, Fall 1997. Available at SSRN: https://ssrn.com/abstract=11164

Jeffrey M. Mercer (Contact Author)

Texas Tech University - Department of Finance ( email )

Rawls College of Business Administration
Lubbock, TX 79409
United States
806-742-3365 (Phone)
806-742-3197 (Fax)

HOME PAGE: http://jmercer.ba.ttu.edu/

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