The Lead-Lag Relationship between Cash and Stock Index Futures in a New Market

19 Pages Posted: 16 Oct 2008

See all articles by Manolis G. Kavussanos

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance

Ilias Visvikis

Independent

Panayotis Alexakis

Athens Stock Exchange

Abstract

This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of the FTSE/ATHEX-20 and FTSE/ATHEX Mid-40 stock index futures and the underlying cash indices in the relatively new futures market of Greece. Empirical results show that there is a bi-directional relationship between cash and futures prices. However, futures lead the cash index returns, by responding more rapidly to economic events than stock prices. This speed is much higher in the more liquid FTSE/ATHEX-20 market. Moreover, results indicate that futures volatilities spill information over to the corresponding cash market volatilities in both investigated futures markets, but volatilities in the cash markets have no effect on the volatilities of futures markets. Overall, it seems that new market information is disseminated faster in the futures market compared to the stock market. This implies that the futures markets can be used as price discovery vehicles, providing further evidence that derivatives markets contribute to completing and stabilising capital markets in Greece. A further finding of this study is that futures volume and disequilibrium effects between cash and futures prices are important variables in the explanation of volatilities in cash and futures markets.

Suggested Citation

Kavussanos, Manolis G. and Visvikis, Ilias and Alexakis, Panayotis, The Lead-Lag Relationship between Cash and Stock Index Futures in a New Market. European Financial Management, Vol. 14, Issue 5, pp. 1007-1025, November 2008. Available at SSRN: https://ssrn.com/abstract=1284000 or http://dx.doi.org/10.1111/j.1468-036X.2007.00412.x

Manolis G. Kavussanos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission St
TK 104 34 Athens
Greece
0030 210 8203167 (Phone)
0030 210 8228816 (Fax)

Ilias Visvikis

Independent ( email )

No Address Available

Panayotis Alexakis

Athens Stock Exchange ( email )

10 Sophocleous str.
Athens 105 59
Greece

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