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One Market? Stocks, Futures, and Options during October 1987

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  • Kleidon, Allan W
  • Whaley, Robert E

Abstract

The authors provide new evidence regarding the degree of integration among markets for stocks, futures, and options prior to and during the October 1987 market crash. Where previous analyses have resulted in recommendations for the implementation of circuit breakers, the coordination of margin requirements across markets, and changes in regulatory jurisdiction, their analysis indicates that delinkage between markets during the crash was primarily caused by an antiquated mechanism for processing stock-market orders. The results suggest that market integration may be better served by efficient order execution than by further restricting markets. Copyright 1992 by American Finance Association.

Suggested Citation

  • Kleidon, Allan W & Whaley, Robert E, 1992. "One Market? Stocks, Futures, and Options during October 1987," Journal of Finance, American Finance Association, vol. 47(3), pages 851-877, July.
    • Handle: RePEc:bla:jfinan:v:47:y:1992:i:3:p:851-77
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    Cited by:

    1. Chen, Qiang & Gong, Yuting, 2019. "The economic sources of China's CSI 300 spot and futures volatilities before and after the 2015 stock market crisis," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 102-121.
    2. Warren Bailey & Lin Zheng, 2013. "Banks, Bears, and the Financial Crisis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(1), pages 1-51, August.
    3. deB. Harris, Frederick H. & McInish, Thomas H. & Chakravarty, Ranjan R., 1995. "Bids and asks in disequilibrium market microstructure: The case of IBM," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 323-345, May.
    4. David M. Frankel, 2008. "Adaptive Expectations And Stock Market Crashes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 595-619, May.
    5. Nilsson, Roland, 2008. "The value of shorting," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 880-891, May.
    6. Shuxin Guo, 2021. "Do futures lead the index under stress? Evidence from the 2015 Chinese market turmoil and its aftermath," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 91-110, January.
    7. Cakici, Nusret & Goswami, Gautam & Tan, Sinan, 2014. "Options resilience during extreme volatility: Evidence from the market events of May 2010," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 262-274.
    8. Ghysels, Eric & Seon, Junghoon, 2005. "The Asian financial crisis: The role of derivative securities trading and foreign investors in Korea," Journal of International Money and Finance, Elsevier, vol. 24(4), pages 607-630, June.
    9. Qian Han & Jufang Liang, 2017. "Index Futures Trading Restrictions and Spot Market Quality: Evidence from the Recent Chinese Stock Market Crash," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(4), pages 411-428, April.
    10. Bernhard Nietert, 1999. "Dynamische Portfolio-Selektion unter Berücksichtigung von Kurssprüngen," Schmalenbach Journal of Business Research, Springer, vol. 51(9), pages 832-866, September.
    11. Hou, Yang & Nartea, Gilbert, 2017. "Price Discovery in the Stock Index Futures Market: Evidence from the Chinese stock market crash," MPRA Paper 81995, University Library of Munich, Germany.
    12. Röthig, Andreas, 2004. "Currency futures and currency crises," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 4022, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    13. Hou, Yang (Greg) & Li, Steven, 2020. "Volatility and skewness spillover between stock index and stock index futures markets during a crash period: New evidence from China," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 166-188.
    14. Joseph K.W. Fung, 2006. "Order Imbalance and the Pricing of Index Futures," Working Papers 132006, Hong Kong Institute for Monetary Research.
    15. Joseph K.W. Fung & Philip Yu, 2007. "Order Imbalance and the Dynamics of Index and Futures Prices," Working Papers 072007, Hong Kong Institute for Monetary Research.
    16. Taufiq Hassan & Shamsher Mohamad & Mohamad Ariff & Annuar Md Nassir, 2007. "Stock Index Futures Prices and the Asian Financial Crisis," International Review of Finance, International Review of Finance Ltd., vol. 7(3‐4), pages 119-141, September.
    17. Molintas, Dominique Trual, 2019. "Rational human behaviour for corporate survival: Black Monday Review," MPRA Paper 100329, University Library of Munich, Germany.
    18. Röthig, Andreas, 2004. "Currency Futures and Currency Crises," Darmstadt Discussion Papers in Economics 136, Darmstadt University of Technology, Department of Law and Economics.
    19. Kun Li, 2019. "Do Circuit Breakers Impede Trading Behavior? A Study In Chinese Financial Market," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1-18, December.

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