Intraday Price Discovery in the Djia Index Markets

14 Pages Posted: 7 Dec 2006

See all articles by Yiuman Tse

Yiuman Tse

University of Texas at San Antonio - College of Business

Paramita Bandyopadhyay

California State University

Yang-pin Shen

National Chung Cheng University - Department of Finance

Abstract

This paper explores the dynamics of price discovery between the Dow Jones Industrial Average (DJIA) index and its three derivative products: the DIAMOND exchange-traded fund (ETF), the floor-traded regular futures, and the electronically traded mini futures. Even though the American Stock Exchange is the primary listing exchange for the ETF, the analysis indicates that the electronically traded ETF on the Archipelago (ArcaEx) electronic communications network dominates the price discovery process for DIAMOND shares. The E-mini futures contribute the most to price discovery, followed by the ArcaEx DIAMOND. The DJIA index and regular futures contribute least to price discovery. The analysis is repeated using the derivatives of the S&P 500 index as a robustness check. The results indicate that multi-market trading ensures greater pricing efficiency. Informed traders favor electronic trading because of immediate and anonymous trade execution.

Suggested Citation

Tse, Yiuman and Bandyopadhyay, Paramita and Shen, Yang-pin, Intraday Price Discovery in the Djia Index Markets. Journal of Business Finance & Accounting, Vol. 33, No. 9-10, pp. 1572-1585, November/December 2006, Available at SSRN: https://ssrn.com/abstract=950053 or http://dx.doi.org/10.1111/j.1468-5957.2006.00639.x

Yiuman Tse (Contact Author)

University of Texas at San Antonio - College of Business ( email )

Department of Finance
San Antonio, TX 78249
United States
210-458-5314 (Phone)

Paramita Bandyopadhyay

California State University ( email )

1250 Bellflower Blvd
Long Beach, CA 90064
United States

HOME PAGE: http://www.csulb.edu/~pbandyop

Yang-pin Shen

National Chung Cheng University - Department of Finance ( email )

Chia-Yi, Taiwan 621
China

HOME PAGE: http://www.cob.ohio-state.edu/fin/findir/individual.html?indivID=2328

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