Lead-Lag Relationship between Spot and Futures Stock Indexes: Intraday Data and Regime Switching Models

Posted: 25 Oct 2017

See all articles by Nuria Alemany

Nuria Alemany

Jaume I University - Department of Finance and Accounting

Vicent Aragó

Jaume I University - Department of Finance and Accounting

Enrique Salvador

Universitat Jaume I - Department of Finance and Accounting

Date Written: November 15, 2016

Abstract

This paper analyses the lead-lag relationship and the effect of arbitrage opportunity changes in the price discovery process between the futures and spot markets of the DAX30. The following two aspects will be considered: high frequency data and nonlinearities in the cointegrating vector. The results reveal the importance of considering structural changes present in the error correction term using Regime Switching Models and the peril of assuming strong linear models. Additionally, the regime dependent impulse response function shows that the dynamic causal effect is remarkably different across regimes, so as the arbitrage opportunities increase, the impact of unexpected shocks on prices increases.

Keywords: regime switching models, arbitrage opportunities, lead-lag relationship, intraday data

JEL Classification: G12, G14, G15, G13

Suggested Citation

Alemany, Nuria and Aragó, Vicent and Salvador, Enrique, Lead-Lag Relationship between Spot and Futures Stock Indexes: Intraday Data and Regime Switching Models (November 15, 2016). Available at SSRN: https://ssrn.com/abstract=3058564

Nuria Alemany (Contact Author)

Jaume I University - Department of Finance and Accounting ( email )

Avda Sos Baynat S/N
Castello de la Plana, Castello 12071
Spain
+34‐964‐387151 (Phone)
+34964‐728565 (Fax)

HOME PAGE: http://www.uji.es/departaments/cofin/

Vicent Aragó

Jaume I University - Department of Finance and Accounting ( email )

Avda Sos Baynat s/N
Castellón, 12071
Spain

Enrique Salvador

Universitat Jaume I - Department of Finance and Accounting ( email )

Castellon
E-12071 Castello de la Plana, Castellón de la Plana 12071
Spain

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