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

Price Discovery and Causality in the Australian Share Price Index Futures Market 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Australian Journal of Management SAGE

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

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References (31)

Publisher
SAGE
Copyright
Copyright © by SAGE Publications
ISSN
0312-8962
eISSN
1327-2020
DOI
10.1177/031289629902400201
Publisher site
See Article on Publisher Site

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.

Journal

Australian Journal of ManagementSAGE

Published: Dec 1, 1999

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