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Article: Order imbalance and the dynamics of index and futures prices

TitleOrder imbalance and the dynamics of index and futures prices
Authors
Issue Date2007
PublisherJohn Wiley & Sons, Inc. The Journal's web site is located at http://www.interscience.wiley.com/jpages/0270-7314/
Citation
Journal Of Futures Markets, 2007, v. 27 n. 12, p. 1129-1157 How to Cite?
AbstractThis study uses transaction records of index futures and index stocks, with bid/ask price quotes, to examine the impact of stock market order imbalance on the dynamic behavior of index futures and cash index prices. Spurious correlation in the index is purged by using an estimate of the "true" indexwith highly synchronous and active quotes of individual stocks. A smooth transition autoregressive error correction model is used to describe the non-linear dynamics of the index and futures prices. Order imbalance in the cash stock market is found to affect significantly the error correction dynamics of index and futures prices. Order imbalance impedes error correction particularly when the market impact of order imbalance works against the error correction force of the cash index, explaining why real potential arbitrage opportunities may persist over time. Incorporating order imbalance in the framework significantly improves its explanatory power. The findings indicate that a stock market microstructure that allows a quick resolution of order imbalance promotes dynamic arbitrage efficiency between futures and underlying stocks. The results also suggest that the unloading of cash stocks by portfolio managers in a falling market situation aggravates the price decline and increases the real cost of hedging with futures. © 2007 Wiley Periodicals, Inc.
Persistent Identifierhttp://hdl.handle.net/10722/82699
ISSN
2015 Impact Factor: 0.698
2015 SCImago Journal Rankings: 0.520
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorFung, JKWen_HK
dc.contributor.authorYu, PLHen_HK
dc.date.accessioned2010-09-06T08:32:23Z-
dc.date.available2010-09-06T08:32:23Z-
dc.date.issued2007en_HK
dc.identifier.citationJournal Of Futures Markets, 2007, v. 27 n. 12, p. 1129-1157en_HK
dc.identifier.issn0270-7314en_HK
dc.identifier.urihttp://hdl.handle.net/10722/82699-
dc.description.abstractThis study uses transaction records of index futures and index stocks, with bid/ask price quotes, to examine the impact of stock market order imbalance on the dynamic behavior of index futures and cash index prices. Spurious correlation in the index is purged by using an estimate of the "true" indexwith highly synchronous and active quotes of individual stocks. A smooth transition autoregressive error correction model is used to describe the non-linear dynamics of the index and futures prices. Order imbalance in the cash stock market is found to affect significantly the error correction dynamics of index and futures prices. Order imbalance impedes error correction particularly when the market impact of order imbalance works against the error correction force of the cash index, explaining why real potential arbitrage opportunities may persist over time. Incorporating order imbalance in the framework significantly improves its explanatory power. The findings indicate that a stock market microstructure that allows a quick resolution of order imbalance promotes dynamic arbitrage efficiency between futures and underlying stocks. The results also suggest that the unloading of cash stocks by portfolio managers in a falling market situation aggravates the price decline and increases the real cost of hedging with futures. © 2007 Wiley Periodicals, Inc.en_HK
dc.languageengen_HK
dc.publisherJohn Wiley & Sons, Inc. The Journal's web site is located at http://www.interscience.wiley.com/jpages/0270-7314/en_HK
dc.relation.ispartofJournal of Futures Marketsen_HK
dc.rightsThe Journal of Futures Markets. Copyright © John Wiley & Sons, Inc.en_HK
dc.titleOrder imbalance and the dynamics of index and futures pricesen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0270-7314&volume=27 &issue=12&spage=1129&epage=1157&date=2007&atitle=Order+imbalance+and+the+dynamics+of+index+and+futures+pricesen_HK
dc.identifier.emailYu, PLH: plhyu@hkucc.hku.hken_HK
dc.identifier.authorityYu, PLH=rp00835en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1002/fut.20288en_HK
dc.identifier.scopuseid_2-s2.0-35948929083en_HK
dc.identifier.hkuros145599en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-35948929083&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume27en_HK
dc.identifier.issue12en_HK
dc.identifier.spage1129en_HK
dc.identifier.epage1157en_HK
dc.identifier.isiWOS:000250242700002-
dc.publisher.placeUnited Statesen_HK
dc.identifier.scopusauthoridFung, JKW=7203073387en_HK
dc.identifier.scopusauthoridYu, PLH=7403599794en_HK

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