A study of the relationship between Stock Index Futures and Stock Index : Empirical case of Taiwan Stock Exchange Capitalization Weighted Stock Index <TAIEX>
Part of : Αρχείον οικονομικής ιστορίας ; Vol.XVI, No.1, 2004, pages 49-71
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Pages:
49-71
Author:
Abstract:
In recent years, futures have become indispensable instruments in the international financial market. From theories or previous empirical studies, it exists the fact that futures market is more sensitive than spot market and the futures market may promote the spot market as well. In other words, it implies the existent and significant lead-lag relationship. Therefore, the topic of study takes the (TAIEX) Taiwan Stock Exchange Capitalization Weighted Stock Index and its’ future contracts TAIFEX; Mini Taiwan stock Index Future <Mini-TAIFEX> as theobjectives. The major purpose is focusing on examining the lead-lag relation between the Taiwan index FUTURE market and SPOT market return rate of the price. By using the intraday five-minutes interval return data from 10/05/2002 to 22/08/2002,with total 4050 sets of market price data. Through descriptive statistics, we examine the lead-lag relationship between Taiwan Stock Index Futures and Spot Market. The first step in the empirical analysis is to examine the stationary of three series (five minutes transaction price data of TAIEX spot and futures TAIFEX; MINI-TAIFEX markets). The non-stationary is tested with use the augmented Dickey-Fuller (1979,ADF) test. Which is capable of predicting the other one? The study can find following empirical result:1. The per five minutes data sets of the TAIEX, TAIFEX and MINI-TAIFEX price return all were stationary.2. In the aspect of Taiwan Stock Exchange Capitalization Weighted Stock Index: The price return rates of futures lead with the spot by 5 minutes. What’s more, the future market may act as a better conduit of information than the spot market, which has price discovery function.The findings TAIFEX and MINI-TAIFEX futures prices lead the TAIEX spot index and suggest that futures markets can provide investors with important information, And hope the investors to get great benefit from the study.
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Keywords:
Futures stock-index market, Spot stock-index market, lead-lay relationship, regression analysis
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JEL classification: G14
