Price Discovery and Investor Structure in Stock Index Futures

Bohl MT, Salm CA, Schuppli JM


Abstract
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.



Publication type
Research article (journal)

Peer reviewed
Yes

Publication status
Published

Year
2011

Journal
Journal of Futures Markets

Volume
31

Issue
3

Start page
282

End page
306

Language
English

ISSN
1096-9934

DOI