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Trading costs and price discovery across stock index futures and cash markets

โœ Scribed by Kim, Minho; Szakmary, Andrew C.; Schwarz, Thomas V.

Publisher
John Wiley and Sons
Year
1999
Tongue
English
Weight
267 KB
Volume
19
Category
Article
ISSN
0270-7314

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โœฆ Synopsis

The focus of this article is to test the trading cost hypothesis of price leadership, which predicts that the market with the lowest overall trading costs will react most quickly to new information. In an attempt to hold market microstructure effects constant and in contrast to previous studies, we examine intraday price leadership across the S&P 500, NYSE Composite, and MMI futures, and across the respective cash indexes-rather than between each futures and its associated cash index. We find that, among the futures, the S&P 500 exhibits price leadership over the other index futures, whereas among the cash indexes the MMI leads. Both findings are consistent with the trading cost hypothesis.

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