Premium
Lead‐lag relationship between spot index and futures price of the nikkei stock average
Author(s) -
Tse Y. K.
Publication year - 1995
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.3980140702
Subject(s) - univariate , futures contract , econometrics , stock index futures , autoregressive model , error correction model , spot contract , lag , index (typography) , statistics , stock market index , economics , cointegration , mathematics , multivariate statistics , computer science , financial economics , stock market , computer network , world wide web , paleontology , horse , biology
Abstract This paper examines the lead‐lag relationship between the spot index and futures price of the Nikkei Stock Average. Using daily data in the post‐crash period we investigate the interaction between the spot and futures series through the error correction model. Two versions of error correction models are considered, depending on the postulated long‐run equilibrium relationship. It is found that lagged changes in the futures price affect the short‐term adjustment in the spot index, but not vice versa. Forecasting models for the spot index are also constructed using the univariate time series approach and the vector autoregressive method. For the post‐sample forecast comparison the error correction models produce the best results. The vector autoregressive method performs better than the martingale model, while the univariate time series method gives the poorest forecasts.