Price discovery in the S&P 500 index derivatives markets

Wei-Peng Chen, Huimin Chung and Donald Lien

International Review of Economics & Finance, 2016, vol. 45, issue C, 438-452

Abstract: This study sets out to examine the dynamics of price discovery between the S&P 500 index and its derivative products: the index futures, the index options, the S&P 500 exchange-traded funds (SPDRs), and the SPDR options. Empirical results reveal that overall the contribution of SPDRs to price discovery exceeds the contribution of E-mini index futures except in the high volatility period. However, E-mini index futures contribute higher information share than SPDRs in the high volatility sub-period, indicating that E-mini index futures play an important role on hedge strategies. The results are associated with (i) increasing institutional ownership in SPDRs and (ii) the rapid growth of algorithmic trading (AT) and high-frequency trading (HFT) by institutional investors.

Keywords: S&P 500 index and derivative markets; Price discovery; Institutional ownership; Algorithmic trading; High-frequency trading (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:438-452

DOI: 10.1016/j.iref.2016.07.008

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