Original scientific paper
https://doi.org/10.1080/1331677X.2022.2090404
The time-varying lead-lag relationship between index futures and the cash index and its factors
Ru Xiao
Chaoqun Ma
Xianhua Mi
Abstract
This paper investigates the time-varying lead-lag relationship
between CSI 300 index futures and the cash index at intraday
and daily frequencies under different market conditions, which is
crucial in the price discovery research but rarely examined by the
literature. Using a new method that is based on dynamic time
warping and can capture the dynamic lead-lag relationship up to
the intraday level, we find that index futures tend to lead the
cash index by 0–5minutes but it occasionally lags the cash index,
and this relationship is variably affected by factors according to
market conditions. Specifically, at both of the intraday and daily
frequencies, the lead of index futures decreases with market volatility
and the relative intensity of trading activity of index futures.
The results also unveil the asymmetric effects of overnight information
from the cash market on the lead times of both index
futures and the cash index at a daily frequency. Moreover, the
synchronization of trading hours strengthened the link between
the two markets. These results have significant implications for
price discovery in these markets
Keywords
Lead–lag relationship; dynamic time warping; price discovery; index futures
Hrčak ID:
304178
URI
Publication date:
31.3.2023.
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