Hostname: page-component-586b7cd67f-tf8b9 Total loading time: 0 Render date: 2024-11-24T13:10:27.087Z Has data issue: false hasContentIssue false
  • English
  • Français

The Dynamics of Stock Index and Stock Index Futures Returns

Published online by Cambridge University Press:  06 April 2009

Hans R. Stoll  and
Robert E. Whaley
Get access Rights & Permissions [Opens in a new window]

Abstract

In rational, efficiently functioning markets, the returns on stock index and stock index futures contracts should be perfectly, contemporaneously correlated. This study investigates the time series properties of 5-minute, intraday returns of stock index and stock index futures contracts, and finds that S&P 500 and MM index futures returns tend to lead stock market returns by about five minutes, on average, but occasionally as long as 10 minutes or more, even after stock index returns have been purged of infrequent trading effects; however, the effect is not completely unidirectional, with lagged stock index returns having a mild positive predictive impact on futures returns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 25 , Issue 4 , December 1990 , pp. 441 - 468
Copyright
Copyright © School of Business Administration, University of Washington 1990

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Brady Commission Report. Report of the Presidential Task Force on Market Mechanisms (01 1988).Google Scholar
CFTC Report. Final Report on Stock Index Futures and Cash Market Activity during October 1987 to the U. S. Commodity Futures Trading Commission. Prepared by the Division of Economic Analysis and the Division of Trading and Markets (01 1988).Google Scholar
Cahn, K.; Chan, K. C.; and Karolyi, G. A.. “Transmissions of Volatility between Stock Index and Stock Index Futures Markets.” Working Paper, Faculty of Finance, Ohio State University (1990).Google Scholar
Cohen, K. J.; Maier, S. A.; Schwartz, R. A.; and Whitcomb, D. K.. “On the Existence of Serial Correlation in an Efficient Securities Market.” TIMS Studies in the Management Sciences, 11 (1979), 151–168.Google Scholar
Cohen, K. J.; Maier, S. A.; Schwartz, R. A.; and Whitcomb, D. K.. The Microstructure of Securities Markets. Englewood Cliffs, NJ; Prentice-Hall, Inc. (1986).Google Scholar
Dimson, E. “Risk Measurement when Shares are Subject to Infrequent Trading.” Journal of Financial Economics, 7 (06 1979), 197–226.CrossRefGoogle Scholar
Engle, R. “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of U. K. Inflation.” Econometrica, 50 (07 1982), 987–1008.CrossRefGoogle Scholar
Fama, E. F.Foundations of Finance, New York; Basic Books, Inc. (1976).Google Scholar
Fisher, L. “Some New Stock Market Indexes.” Journal of Business, 39 (01. 1966), 191–225.CrossRefGoogle Scholar
Granger, C. “Investigating Causal Relations by Econometric Models and Cross Spectral Methods.” Econometrica, 37 (1969), 424–438.CrossRefGoogle Scholar
Harris, L. “The October 1987 S&P 500 Stock-Futures Basis.” Journal of Finance, 44 (03 1989), 77–99.Google Scholar
Kawaller, I.; Koch, P.; and Koch, T.. “The Temporal Relationship between S&P 500 Futures Prices and the S&P 500 Index.” Journal of Finance, 42 (12. 1987a), 1309–1329.CrossRefGoogle Scholar
Kawaller, I.; Koch, P.; and Koch, T.. “The Extent of Feedback between S&P 500 Futures Prices and the S&P 500 Index.” Working Paper, Chicago Mercantile Exchange (09. 1987b).Google Scholar
Lo, A. W., and MacKinlay, A. C.. “Stock Market Prices Do Not Follow Random Walks; Evidence from a Simple Specification Test.” Review of Financial Studies, 1 (Spring 1988), 41–66.CrossRefGoogle Scholar
MacKinlay, A. C, and Ramaswamy, K.. “Index Futures Arbitrage and the Behavior of Stock Index Futures Prices.” Review of Financial Studies, 1 (Summer 1988), 137–158.CrossRefGoogle Scholar
Muthuswamy, J. “Nonsynchronous Trading and the Index Autocorrelation Problem.” Working Paper, Graduate School of Business, Univ. of Chicago (1989).Google Scholar
Ng, N. “Detecting Spot Prices Forecasts in Futures Prices Using Casuality Tests.” The Review of Futures Markets, 6 (05 1987), 250–267.Google Scholar
Pierce, D. A., and Haugh, L. D.. “Causality in Temporal Systems; Characterization and Survey.” Journal of Econometrics, 5 (05 1977), 265–293.CrossRefGoogle Scholar
Roll, R. “A Simple Implicit Measure of the Effective Bid/Ask Spread.” Journal of Finance, 39 (09. 1984), 1127–1139.Google Scholar
SEC Report. The October Market Break. A report by the Division of Market Regulation, U. S. Securities and Exchange Commisson (02. 1988).Google Scholar
Scholes, M., and Williams, J.. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, 5 (12. 1977), 309–327.CrossRefGoogle Scholar
Sims, C. A. “Money, Income and Causality.” American Economic Review, 62 (09. 1972), 540–552.Google Scholar
Stephan, J. A., and Whaley, R. E.. “Intraday Price Change and Trading Volume Relations in the Stock and Stock Option Markets.” Journal of Finance, 45 (03 1990), 191–200.CrossRefGoogle Scholar
Stoll, H. R. “Inferring the Components of the Bid/Ask Spread: Theory and Empirical Tests.” Journal of Finance, 44 (03 1989), 115–134.Google Scholar
Stoll, H. R., and Whaley, R. E.. “Transaction Costs and the Small Firm Effect.” Journal of Financial Economics, 12 (06 1983), 57–79.CrossRefGoogle Scholar
Stoll, H. R., and Whaley, R. E.. Expiration Day Effects of Index Options and Futures. Monograph Series in Finance and Economics, New York Univ. Monograph 1986–3 (1986).Google Scholar
Stoll, H. R., and Whaley, R. E.. “Program Trading and the Expiration Day Effects of Index Options and Futures.” Financial Analysts Journal (03/04 1987), 16–28.CrossRefGoogle Scholar
Stoll, H. R., and Whaley, R. E.. “Stock Market Structure and Volatility.” Review of Financial Studies, 3 (Spring 1990), 37–71.CrossRefGoogle Scholar