An Investigation of the Lead-Lag Relationship in Returns and Volatility between Cash and Stack Index Futures: The Case of Greece
28 Pages Posted: 20 Jun 2002
Abstract
This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of stock index futures and the underlying cash index in the FTSE/ASE-20 and FTSE/ASE Mid-40 markets of the Athens Stock Exchange. Empirical results confirm previous findings that there is a large contemporaneous relation, together with asymmetric lead-lag behaviour between the cash and futures markets. There is evidence that the futures lead the cash index returns, by responding more rapidly to economic events than stock prices. This asymmetric lead-lag relation can be attributed to the predictive power of futures returns, supporting the price discovery hypothesis that new market information is disseminated faster in the futures market compared to the stock market. After examining whether daily volatility in futures prices has systematically lead daily volatility in the cash index, the results provide a weak indication that cash volatility spills some information in the futures market volatility in the FTSE/ASE-20 market. In the FTSE/ASE Mid-40 market, the results indicate that there are robust volatility spillovers from the futures to the cash market, which imply that the futures market can be used as a price discovery vehicle.
Keywords: Stock Index Futures, Price Discovery, GARCH, Volatility Spillovers
JEL Classification: G13, G14
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Time-Varying World Market Integration
By Geert Bekaert and Campbell R. Harvey
-
Time-Varying World Market Integration
By Geert Bekaert and Campbell R. Harvey
-
Foreign Speculators and Emerging Equity Markets
By Geert Bekaert and Campbell R. Harvey
-
Foreign Speculators and Emerging Equity Markets
By Geert Bekaert and Campbell R. Harvey
-
The World Price of Foreign Exchange Risk
By Bernard Dumas and Bruno Solnik
-
Emerging Equity Market Volatility
By Geert Bekaert and Campbell R. Harvey
-
Emerging Equity Market Volatility
By Geert Bekaert and Campbell R. Harvey
-
Characterizing Predictable Components in Excess Returns on Equity and Foreign Exchange Markets
By Geert Bekaert and Robert J. Hodrick