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Price discovery and investor structure in stock index futures
Author(s) -
Bohl Martin T.,
Salm Christian A.,
Schuppli Michael
Publication year - 2011
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20469
Subject(s) - futures contract , price discovery , financial economics , economics , stock index futures , autoregressive conditional heteroskedasticity , index (typography) , futures market , spot market , forward market , stock market index , stock (firearms) , stock market , econometrics , volatility (finance) , paleontology , electricity , horse , world wide web , computer science , electrical engineering , biology , engineering , mechanical engineering
Previous literature on price discovery in stock index futures and spot markets neglects the role of different investor groups. This study relates time‐varying spot‐futures linkages studied within a VECM‐DCC‐GARCH framework to changes in the investor structure of the futures market over time. Empirical results suggest that during the dominance of presumably uninformed private investors, the futures market does not contribute to price discovery. By contrast, there is evidence of information flows from futures to spot markets and a significant increase in conditional correlation between both markets as institutional investors' share in trading volume increases. We derive implications for the design of emerging futures markets. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark31:282–306, 2011