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Price discovery among SSE 50 Index‐based spot, futures, and options markets
Author(s) -
Ahn Kwangwon,
Bi Yingyao,
Sohn Sungbin
Publication year - 2019
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.21970
Subject(s) - price discovery , futures contract , transaction cost , sample (material) , index (typography) , financial economics , spot contract , economics , spot market , forward market , derivatives market , normal backwardation , database transaction , open outcry , algorithmic trading , futures market , business , monetary economics , microeconomics , alternative trading system , database , computer science , world wide web , electricity , chemistry , chromatography , electrical engineering , engineering
This paper studies the contribution of newly launched SSE 50 Index‐based options and futures to price discovery. We find that the derivatives markets quickly begin exhibiting price leadership over the corresponding spot market, despite their short history; the information share from both derivatives markets rose from 59.84% in mid‐2015 to 84.6% in mid‐2017. Using substantial regulation changes during the sample period, we test the trading cost hypothesis. The increases in derivatives transaction costs do not immediately impede their roles in price discovery. Findings suggest that in nascent and immature markets, investors’ trading experience matters more than trading costs.