When stock futures dominate price discovery

Nidhi Aggarwal () and Susan Thomas

Journal of Futures Markets, 2019, vol. 39, issue 3, 263-278

Abstract: This paper revisits the role of leverage in price discovery, using one of the most liquid single‐stock futures (SSFs) markets in the world. Price discovery is analysed as a dynamic intraday process. We find that the information share of the SSFs is 55% during news arrivals. It increases to 61%, when the news is negative and the futures is preferred because of short‐sales restrictions on the spot. A partial equilibrium analysis predicts that the trade‐off between leverage and market liquidity determines price discovery across securities. These predictions are validated by empirical evidence.

Date: 2019
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Citations: View citations in EconPapers (11)

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https://doi.org/10.1002/fut.21973

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Working Paper: When do stock futures dominate price discovery (2011)
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