Price discovery in spot and futures markets: a reconsideration
- We reconsider the issue of price discovery in spot and futures markets. We use a threshold error correction model to allow for arbitrage operations to have an impact on the return dynamics. We estimate the model using quote midpoints, and we modify the model to account for time-varying transaction costs. We find that the futures market leads in the process of price discovery. The lead of the futures market is more pronounced in the presence of arbitrage signals. Thus, when the deviation between the spot and the futures market is large, the spot market tends to adjust to the futures market.
Author: | Erik TheissenORCiDGND |
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URN: | urn:nbn:de:hebis:30-73571 |
Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2009,27 |
Series (Serial Number): | CFS working paper series (2009, 27) |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2009 |
Year of first Publication: | 2009 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2010/01/13 |
Tag: | Common Factor Weights; Futures Markets; Information Shares; Threshold Error Correction |
GND Keyword: | Preisbildung; Kassamarkt; Terminmarkt |
HeBIS-PPN: | 220665826 |
Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Licence (German): | Deutsches Urheberrecht |