In this study, we modify the information share (IS) originally proposed by Hasbrouck, J. (1995). The proposed modified information share (MIS) leads to a unique measure of price discovery instead of the upper and lower IS bounds. Performance of MIS is compared with the Hasbrouck IS measure and the Gonzalo-Granger permanent-transitory decomposition (PT/GG)-based measure using simulations with 1,000 replications applied to the same three examples considered by Hasbrouck, J. (2002). The MIS is found to outperform both Hasbrouck IS measure and PT/GG measure. The empirical application of the MIS to three major stock indices indicates that price discovery takes place mostly in the futures market. Hence, the evidence supports the transaction cost hypothesis as well as the model proposed by Garbade, K. D., and Silber, W. L. (1983).

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In this article, optimal hedge ratios are estimated for different hedging horizons for 23 different futures contracts using wavelet analysis. The wavelet analysis is chosen to avoid the sample reduction problem faced by the conventional methods when applied to non-overlapping return series. Hedging performance comparisons between the wavelet hedge ratio and error-correction (EC) hedge ratio indicate that the latter performs better for more contracts for shorter hedging horizons. However, the performance of the wavelet hedge ratio improves with the increase in the length of the hedging horizon. This is true for both within-sample and out-of-sample cases.

Purpose -The purpose of this paper is to investigate the relationship between the Chinese stock market indices and a set of macro-economic variables, i.e. money supply, industrial production, inflation, exchange rate and interest rates. Design/methodology/approach -The aims of this paper are addressed using heteroscedastic cointegration analysis. Findings -Results show that the cointegrating relationship does exist between stock prices and the macro-economic variables in the highly speculative Chinese stock market. Detailed analysis shows stock market performance is positively related to that of macro-economy in the long term.Research limitations/implications -The results imply that in the long run, investors can benefit in terms of better returns and portfolio diversification as the Chinese economy is expected to continue to perform strongly. Originality/value -The main contributions of this paper are two-fold: first, this is the first paper to examine the long-term relationship between the stock market indices and macro-economic variables in China, one of largest economies in the world. Second, heteroscedastic cointegration analysis is used and hence this paper controls for time-varying volatility.

This article analyzes the effects of the length of hedging horizon on the optimal hedge ratio and hedging effectiveness using 9 different hedging horizons and 25 different commodities. We discuss the concept of shortand long-run hedge ratios and propose a technique to simultaneouslyWe are grateful to an anonymous referee and the Editor for their helpful comments and suggestions. Chen, Lee, and Shrestha estimate them. The empirical results indicate that the short-run hedge ratios are significantly less than 1 and increase with the length of hedging horizon. We also find that hedging effectiveness increases with the length of hedging horizon. However, the long-run hedge ratio is found to be close to the naïve hedge ratio of unity. This implies that, if the hedging horizon is long, then the naïve hedge ratio is close to the optimum hedge ratio.