Price Discovery and Causality in the Australian Share Price Index Futures Market

Joshua Turkington and David Walsh
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Joshua Turkington: The University of Western Australia, Nedlands, WA, 0907, Australia.
David Walsh: The University of Western Australia and State Street Global Advisors, Level 44, Gateway, 1 Macquarie Place Sydney 2000. Email: David_Walsh@SSgA.com

Australian Journal of Management, 1999, vol. 24, issue 2, 97-113

Abstract: The high†frequency causal relationship between prices of share price index futures and the All†Ordinaries Index (AOI) in Australia is studied. This allows conclusions to be drawn on the impact of market structure on infor Med trading and on the nature of the cost†of†carry model. The usual result of futures leading spot is strongly rejected, with clear bi†directional causality, and with many significant lags. This suggests that an electronic market may enhance price discovery. However, price discovery is quite slow which suggests that there is no preferred market for infor Med trading in this environment, and that tests for the presence of arbitrage opportunities and for the correctness of the cost†of†carry model may be ineffective unless the lag structure is taken into account.

Keywords: CAUSALITY; INDEX FUTURES; COST†OF†CARRY (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:24:y:1999:i:2:p:97-113

DOI: 10.1177/031289629902400201

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