The relationship between the S&P 500 spot and futures indices: brothers or cousins?

Chien-Liang Chiu, Shu-Mei Chiang and Feng Kao

Applied Financial Economics, 2006, vol. 16, issue 5, 405-412

Abstract: This paper applies the GARJI model to investigate the impact of news on the S&P 500 spot and index futures. We show their reactions are dissimilar to good or bad news. Hence, though they are like brothers, they are cousins. Besides, the persistence and sensitivity parameters for the arrival of jump events are quite high and significant. It means a high probability of many jumps today seems to be followed by a high probability of many jumps tomorrow. We suggest it is necessary to consider the time series dynamics in the jump size distribution when studying the impact of news on financial markets.

Date: 2006
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DOI: 10.1080/09603100500400239

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