The causal relationship between stock index futures and cash index prices in Hong Kong

Tang, Gordon Y. N.; Mak, S. C.; Choi, Daniel F.S.

doi:10.1080/758527099

Cited by 27 publications

(20 citation statements)

References 14 publications

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“…While the dynamics between HSI index and futures returns have been documented (Tang, Mak, and Choi 1992;Chiang and Fong 2001;Jiang, Fung, and Cheng 2001;Draper and Fung 2003;Chan, Chan, and Cheng 2004;Chiang and Wang 2008), including the potential arbitrage associated with mispricing (Cheng, Fung, and Tse 2005;Zhang and Lai 2006;Wang 2008), the investigation of the non-linear dynamics between the Hang Seng stock index and futures returns remains relatively unexplored. Consequently, this investigation adds to a developing literature that applies more complex modelling techniques (Eling and Toplek, 2009), such as Fractionally Integrated Error Correction models (Rajaguru and Pattnayak 2007), Exponential Generalised Autoregressive Heteroskedastic models (Butler and Okada 2008), Markov switching models (Okimoto 2008), or wavelet analysis (In and Kim 2006) Martens, Kofman and Vorst (1998) utilises a threshold error-correction model to investigate the complex dynamics between intraday Standard & Poors 500 futures and index returns, our main objective lies in the application of a Threshold AutoRegressive (TAR) model to the Hong Kong stock and futures markets.…”

Section: Introductionmentioning

confidence: 99%

Threshold non-linear dynamics between Hang Seng stock index and futures returns

Chung

Chan

Batten

2011

The European Journal of Finance

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We test the joint dynamics between the Hong Kong Hang Seng Index futures and the underlying cash index using a Bivariate Threshold AutoRegressive model, which is better able to capture the complex return dynamics evident in financial time series. The results are consistent with a three-regime version of the model, where the lead-lag relation between the index and futures returns is a non-linear threshold-type and the regime switching process depends on the state of the threshold variable. This interaction is symmetric rather than unidirectional, with the strength of the interaction dependent on the regime. These three regimes are also characterised by significant variation in volume, which is consistent with liquidity-induced arbitrage trading.lead-lag relationship, threshold autoregression, non-linearity test, futures markets, Hang Seng index,

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Section: Introductionmentioning

confidence: 99%

Threshold non-linear dynamics between Hang Seng stock index and futures returns

Chung

Chan

Batten

2011

The European Journal of Finance

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“…But a lot of research is studying the price moved in the two marketplaces, showing a relation in the lead-lag in change from 1980's. For example, Kawaller et al [6],Abhyankar [2] and Tang et al [3] use modified/non-modified Granger causality tests. Wahab & Lashgari [9] Fleming et al [7] and Pizzi et al [8] use cointegration and error correction models.…”

Section: Futures and The Spot Marketmentioning

confidence: 99%

Research on Relation between Stock Index Futures and Spot Market

Gong

Dingan²,

Fan³

2008

2008 4th International Conference on Wireless Communications, Networking and Mobile Computing

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The article examines the lead-lag relationship in returns on stock index futures and spot market from the Asia practice; the trading volume change relationship between stock index futures and spot market; the impact of stock index futures on stock price fluctuation. The conclusions drawn are that stock index futures may not enhance the spot market fluctuation. Stock index futures can strengthen the marketplace stability; they can perfect our countries capital market structure and function. Keywords-stock index futures; spot market; trading volume; price fluctuation I.978-1-4244-2108-4/08/$25.00

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“…Examples of this approach include Kawaller et al (1987), Stoll and Whaley (1990), Tang et al (1992) and many others. The summations have increments ( j ) that are equal to the corresponding sampling interval of the data (k).…”

Section: Causality and Cost Of Carrymentioning

confidence: 99%

“…Suppose we construct a time series of prices from a succession of contracts with an original maturity of 91 days. Tang et al (1992) ignored the problem entirely. From (4), the expected value (E T ) of the next day's p-basis, when a new contract enters the data, is E T b T + 1 = 91r.…”

Section: An Error Correction Model (Ecm)mentioning

confidence: 99%

See 1 more Smart Citation

Unified tests of causality and cost of carry: the pricing of the French stock index futures contract

Green¹,

Joujon²

2000

Int. J. Fin. Econ.

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It is generally believed that the existence of Granger causality between stock index futures prices and spot prices is inconsistent with the cost of carry theory. In this paper, we argue that the logical links between Granger causality and cost of carry have not previously been correctly set out. We show that causality tests must be set in the framework of an error correction model (ECM) and that this is also the appropriate framework within which to test cost of carry theory. We, therefore, use a single unified framework to test both causality and cost of carry. Within this framework, we show that, under reasonable assumptions, cost of carry requires that there must be some causal relationships between futures and spot prices, and that cost of carry may be consistent with either bi‐ or unidirectional causality. We use our specification to study the pricing of the French CAC‐40 (CAC: Compagnie des Agents de Change) stock index futures contract. We find that the data are consistent with cost of carry only in the first period of the data, when causality only runs from spot to futures but not later, when causality is either bidirectional or runs from futures to spot. These results provide little support for the view that stock index futures necessarily lead spot and suggest the need for a reconsideration of the theory and evidence on stock index futures pricing. Copyright © 2000 John Wiley & Sons, Ltd.

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The causal relationship between stock index futures and cash index prices in Hong Kong

Cited by 27 publications

References 14 publications

Threshold non-linear dynamics between Hang Seng stock index and futures returns

Threshold non-linear dynamics between Hang Seng stock index and futures returns

Research on Relation between Stock Index Futures and Spot Market

Unified tests of causality and cost of carry: the pricing of the French stock index futures contract

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