Abstract
The study explores the underpinning interlinkages in the spot and futures markets across nine Asian advanced and emerging economies, and examines whether development status has any impact on the nature and speed of adjustments in the information transmission. By applying Panel VECM to the data set from the very day futures trading was initiated on the respective exchange till February 2020, the results highlight that in the long run, over the entire period, the futures market adjusts 69.7% more than the spot market and there is a bidirectional causality in the short run. Even in the sub-periods, the same phenomena were observed, and in the short run, there was a unidirectional causality from futures to spot during the crisis period. An identical trend was observed for country groups in three sub-periods. However, in the short run, during the crisis period, a unidirectional causality from futures to spot was found in advanced economies, while the opposite pattern was found in emerging economies. The paper establishes that the spot market dominates the information dissemination process. The results also demonstrate that traders prefer liquidity over leverage as their trading venue, the existence of potential index arbitrage opportunities, and validate that development status has no impact on the information transmission pattern amongst the markets, except during turbulent times. The study offers insights to market participants to develop their specific trading strategies in these markets at various economic stages, thereby increasing their expected returns.
Highlights
The dilemma as to which market, futures or spot, should be considered to develop trading strategies remains a matter of interest and concern among researchers, portfolio managers and academicians
By applying Panel vector error correction model (VECM) to the data set from the very day futures trading was initiated on the respective exchange till February 2020, the results highlight that in the long run, over the entire period, the futures market adjusts 69.7% more than the spot market and there is a bidirectional causality in the short run
The results demonstrate that traders prefer liquidity over leverage as their trading venue, the existence of potential index arbitrage opportunities, and validate that development status has no impact on the information transmission pattern amongst the markets, except during turbulent times
Summary
The dilemma as to which market, futures or spot, should be considered to develop trading strategies remains a matter of interest and concern among researchers, portfolio managers and academicians. (1995), Fleming et al (1996), Hasbrouck (2003), serve that in both Hong Kong regular and mini and Pizzi et al (1998) examine US equity mar- and VIX futures markets, the futures market leads kets and conclude that information transmission the spot. The study infers that futures price lead (2018), and Fassas and Siriopoulos (2019) infer the is more prominent in the presence of arbitrage It predominance of futures in the information share. Entrop et al (2020) by global asset allocators to devise their informed examine if market quality, uncertainty, investor strategies to attain their respective objectives like sentiment and attention, and macroeconomic hedging and profiting It further examines whethnews impact bitcoin’s informational content in er there is any shift in the investor structure durthe futures and spot markets. Augments the informational role of futures markets. Shrestha (2014) investigates the energy markets and conclude that futures dominate the price
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
