Investigation of a lead-lag relationship between spot stock indices and their futures contracts

✍ Scribed by Anthony F. Herbst; Joseph P. McCormack; Elizabeth N. West

• Publisher: John Wiley and Sons
• Year: 1987
• Tongue: English
• Weight: 503 KB
• Volume: 7
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990070403

✦ Synopsis

onsidering the newness of stock index futures, considerable analysis has been C done of the relationship between spot and futures indices, including some empirical examination of lead-lag relationships. However, most studies thus far have lacked objective measures of the timing relationship connecting the two series. This article presents results of a study conducted to provide an objective measure of this timing relationship.

PREVIOUS, RELATED STUDIES

Zeckhauser and Niederhoffer (1983) looked at the early experience with market index futures and found indications that futures prices appear to have some ability to anticipate movements in the spot index, particularly in the near term. Their analysis consisted of computing the basis (difference between the price of the futures contract and the price of the spot index) at closing, a variable they call the premium. This variable was examined with three different movements in the spot price-to the next day open, to the next day close, and to the close three days later. Looking