A comprehensive examination of the compass rose pattern in futures markets

✍ Scribed by Lee, Chun I.; Gleason, Kimberly C.; Mathur, Ike

• Publisher: John Wiley and Sons
• Year: 1999
• Tongue: English
• Weight: 601 KB
• Volume: 19
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/(sici)1096-9934(199908)19:5<541::aid-fut3>3.0.co;2-7

✦ Synopsis

This article provides a comprehensive examination of the existence, or the lack thereof, of the compass rose pattern in futures markets. The results from 118 futures contracts traded on 31 futures exchanges in 15 countries show that the compass rose pattern exists only in some futures contracts, in contrast to the robust existence among stocks documented by and Chen (1997). Not all contracts on the same exchange exhibit this pattern. However, the pattern appears to be concentrated in some sectors. Although this evidence suggests that effective tick sizes that are different among contracts may be the determining factor for the existence of the pattern, contradicting evidence also suggests that there are other yet-to-be-identified determinants at work. Furthermore, whereas the pattern is absent in the daily returns of primary stock index futures contracts such as the Major Market Index (MMI), it is