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.

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Metadaten
Author:Erik TheissenORCiDGND
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:Universit├Ątsbibliothek 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):License LogoDeutsches Urheberrecht