Price discovery between index futures and spot markets

Sifat, Imtiaz Mohamma and Mohamad, Azhar and Amin, Kevin R. (2019) Price discovery between index futures and spot markets. In: The 21st Malaysian Finance Association Conference 2019 (MFAC 2019), 31st July - 1st August 2019, Bandar Sunway, Selangor. (Unpublished)

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Abstract

In this paper, we utilize high-frequency 15-seconds intraday data from September 2018 through to August 2019 to investigate price leadership dynamics between futures and spot markets in Malaysia. We employ Maximal Overlap Discrete Wavelet Transform to evaluate interdependence between contemporaneous futures and spot returns spaced at 15 seconds. We observe that price discovery between futures and spot markets constitutes at granular level is a scale-dependent phenomenon. Moreover, we record a counter-intuitive but not unprecedented evidence of futures market lagging the spot market in price formation with the speed of adjustment approaching convergence in between 1-8 minutes. Our findings constitute evidence against the efficient market hypothesis and hint at arbitrageable opportunities, especially by high-frequency robots. Robustness checks via BEKK-GARCH and DCC-GARCH estimations yield no contradiction.

Item Type:	Conference or Workshop Item (Slide Presentation)
Additional Information:	3334/73881
Uncontrolled Keywords:	price discovery, index futures, spot markets
Subjects:	H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	Dr Azhar Mohamad
Date Deposited:	29 Oct 2019 16:23
Last Modified:	29 Oct 2019 20:23
URI:	http://irep.iium.edu.my/id/eprint/73881

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