Price Discovery and Volatility Spillovers in Index Futures Markets: Some Evidence from Mexico

26 Pages Posted: 30 Jun 2004

See all articles by Maosen Zhong

Maosen Zhong

University of Queensland - Business School

Ali F. Darrat

Louisiana Tech University - College of Business

Rafael Otero

University of Texas at Brownsville - School of Business

Abstract

This paper investigates the hypotheses that the recently established Mexican stock index futures market effectively serves the price discovery function, and that the introduction of futures trading has provoked volatility in the underlying spot market. We test both hypotheses simultaneously with daily data from Mexico in the context of a modified EGARCH model that also incorporates possible cointegration between the futures and spot markets. The evidence supports both hypotheses, suggesting that the futures market in Mexico is a useful price discovery vehicle, although futures trading has also been a source of instability for the spot market. Several managerial implications are derived and discussed.

Keywords: Stock index futures, emerging markets, cointegration, error correction, EGARCH

JEL Classification: G13, G15, G18

Suggested Citation

Zhong, Maosen and Darrat, Ali F. and Otero, Rafael, Price Discovery and Volatility Spillovers in Index Futures Markets: Some Evidence from Mexico. Available at SSRN: https://ssrn.com/abstract=470341 or http://dx.doi.org/10.2139/ssrn.470341

Maosen Zhong (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Ali F. Darrat

Louisiana Tech University - College of Business ( email )

Department of Economics & Finance
P.O. Box 10318
Ruston, LA 71272
United States
318-257-3874 (Phone)
318-257-4253 (Fax)

Rafael Otero

University of Texas at Brownsville - School of Business ( email )

80 Fort Brown
Brownsville, TX 78520
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
549
Abstract Views
4,632
rank
61,249
PlumX Metrics