Price reversals versus price continuations: the transitory price effects of futures trading extension on the underlying stock market

Price reversals versus price continuations: the transitory price effects of futures trading... This paper examines the transitory price effects of index futures trading extension on the underlying stock market. Based on the model formulation of George and Hwang (1995) and Amihud and Mendelson (1987) and using the Hong Kong data, we find that the extension of futures trading hour helps to reduce the opening pricing errors and change the correlations between daytime and overnight stock returns. Our finding adds to the literature that the trading behavior of derivatives has a significant influence on the transitory price changes of the underlying cash products. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Price reversals versus price continuations: the transitory price effects of futures trading extension on the underlying stock market

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-009-0108-0
Publisher site
See Article on Publisher Site

Abstract

This paper examines the transitory price effects of index futures trading extension on the underlying stock market. Based on the model formulation of George and Hwang (1995) and Amihud and Mendelson (1987) and using the Hong Kong data, we find that the extension of futures trading hour helps to reduce the opening pricing errors and change the correlations between daytime and overnight stock returns. Our finding adds to the literature that the trading behavior of derivatives has a significant influence on the transitory price changes of the underlying cash products.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Feb 24, 2009

References

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