The authors would like to thank an anonymous referee and the editor of the journal for their comments in earlier versions of this paper. Thanks are also due for their comments the participants of the European Financial Management Association Annual Conference, 26th– 29th June 2002, London, UK, where an earlier version of this paper was presented. The responsibility for any remaining errors rests fully with the authors. Correspondence: Manolis G. Kavussanos.
The Lead-Lag Relationship Between Cash and Stock Index Futures in a New Market
Article first published online: 29 OCT 2007
© 2008 The Authors Journal compilation © 2008 Blackwell Publishing Ltd
European Financial Management
Volume 14, Issue 5, pages 1007–1025, November 2008
How to Cite
Kavussanos, M. G., Visvikis, I. D. and Alexakis, P. D. (2008), The Lead-Lag Relationship Between Cash and Stock Index Futures in a New Market. European Financial Management, 14: 1007–1025. doi: 10.1111/j.1468-036X.2007.00412.x
- Issue published online: 13 OCT 2008
- Article first published online: 29 OCT 2007
- stock index futures markets;
- price discovery;
- Granger causality;
- GIR analysis;
- volatility spillovers
This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of the FTSE/ATHEX-20 and FTSE/ATHEX Mid-40 stock index futures and the underlying cash indices in the relatively new futures market of Greece. Empirical results show that there is a bi-directional relationship between cash and futures prices. However, futures lead the cash index returns, by responding more rapidly to economic events than stock prices. This speed is much higher in the more liquid FTSE/ATHEX-20 market. Moreover, results indicate that futures volatilities spill information over to the corresponding cash market volatilities in both investigated futures markets, but volatilities in the cash markets have no effect on the volatilities of futures markets. Overall, it seems that new market information is disseminated faster in the futures market compared to the stock market. This implies that the futures markets can be used as price discovery vehicles, providing further evidence that derivatives markets contribute to completing and stabilising capital markets in Greece. A further finding of this study is that futures volume and disequilibrium effects between cash and futures prices are important variables in the explanation of volatilities in cash and futures markets.