Price Discovery between Informationally Linked Markets During Different Trading Phases

Posted: 15 Feb 2002

See all articles by Abul M. M. Masih

Abul M. M. Masih

King Fahd University of Petroleum & Minerals (KFUPM) - Department of Finance & Economics (FINEC)

Rumi Masih

Goldman Sachs Asset Management

Allan Hodgson

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Abstract

The dynamic nature of the price information transfer when stock and futures markets switch between different price trading phases is examined. This is undertaken by decomposing Australian stock indices and share price index futures contract data into bear and bull periods and analyzing the change in the power of the bi-directional information feedback between the futures market and small, medium and large stocks. Results support the hypothesis that the nature of the price discovery process varies with the trading phase. In particular, during the bull phase small stocks show a marked increase in price exogeneity and futures prices contain relatively less price sensitive fundamental information. We argue that in bull markets, futures trading becomes increasingly associated with non-information trading such as realizing paper profits, portfolio rebalancing and increased noise trading.

JEL Classification: G14

Suggested Citation

Masih, Abul Mansur M. and Masih, Rumi and Hodgson, Allan C., Price Discovery between Informationally Linked Markets During Different Trading Phases. Available at SSRN: https://ssrn.com/abstract=293193

Abul Mansur M. Masih

King Fahd University of Petroleum & Minerals (KFUPM) - Department of Finance & Economics (FINEC) ( email )

Dhahran 31261
Saudi Arabia

Rumi Masih

Goldman Sachs Asset Management ( email )

32 Old Slip
New York, NY 10005
United States
212-902-4410 (Phone)
212-346-4402 (Fax)

Allan C. Hodgson (Contact Author)

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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