Asymmetric information linkages across select futures and spot indices

Saif Siddiqui and Preeti Roy

Journal of Advances in Management Research, 2020, vol. 17, issue 3, 397-419

Abstract: Purpose - The study investigates the amplitude and direction of the movement of information between spot and futures indices. The study progresses to account for the investor's heterogeneity and compare the evolving structure of investors in emerging and developed economies. Further, the structural linkages in terms of returns and variance have been explored for the futures indices to contribute to meteor shower literature as explained by Engleet al.(1990); Yarovayaet al.(2017). Design/methodology/approach - To facilitate the purpose, the Indian and Chinese markets were selected to represent emerging economies and the United States for developed one. The bivariate wavelet cum BEKK-GARCH (1,1) model was estimated. Findings - For the developed markets, like the United States, the spot market improves its information transmission role with time horizon while exactly opposite holds for the Chinese market. A bidirectional overnight information spillover was found for all three pairs. The Indian futures market was vulnerable to bad news from the other two markets. Evidence suggesting the dominance of institutional investors in the Chinese futures market and retail investors in the Indian futures market is found. Originality/value - The spot–futures relation has been studied on both the time and frequency domains considering different investment horizons. Due consideration has been taken to account for the overlapping trading hours.

Keywords: Information spillover; Volatility; Wavelet; Emerging markets; Index futures; C58; F3; G15; G23 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jamrpp:jamr-10-2019-0197

DOI: 10.1108/JAMR-10-2019-0197

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