Price discovery in spot and futures markets: A reconsideration

Arbeitspapier

We reconsider the issue of price discovery in spot and futures markets. We use a threshold error correction model to allow for arbitrage operations to have an impact on the return dynamics. We estimate the model using quote midpoints, and we modify the model to account for time-varying transaction costs. We find that the futures market leads in the process of price discovery. The lead of the futures market is more pronounced in the presence of arbitrage signals. Thus, when the deviation between the spot and the futures market is large, the spot market tends to adjust to the futures market.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper ; No. 2009/27

Classification and Topics

• Classification: Wirtschaft ; Contingent Pricing; Futures Pricing; option pricing ; Information and Market Efficiency; Event Studies; Insider Trading
• Subject: Futures Markets ; Threshold Error Correction ; Information Shares ; Common Factor Weights ; Spotmarkt ; Termingeschäft ; Elektronisches Handelssystem ; Preis ; Mikrostrukturanalyse ; Fehlerkorrekturmodell

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Theissen, Erik
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/43243
• URN: urn:nbn:de:hebis:30-73571
• Last update: 10.03.2025, 11:43 AM CET