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Return Volatility Movements in Spot and Futures Markets: Evidence from Intraday Behavior of the S&P 500 Index

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  • Jeng-Hong Chen

Abstract

After the Debt Ceiling Bill was passed on August 2, 2011, the S&P 500 index returns volatility increased significantly until the end of 2011. This research investigates the return volatility movements in S&P 500 spot index and index futures markets, the lead/lag relationship between two markets, and the effect of volatility on the trading costs using year 2011 intraday data. The analyses of intraday data show the following results during the higher volatility period (8/3/2011–12/30/2011): First, the difference of return variances between index futures and spot index is even greater than that during the lower volatility period. Second, the index futures market leads the spot index market and the interaction between both markets becomes stronger. Third, both index futures and spot index exhibit clearer U-shape intraday pattern of return volatilities. Finally, the trading costs, measured by the bid-ask spreads, are significantly larger.

Suggested Citation

  • Jeng-Hong Chen, 2014. "Return Volatility Movements in Spot and Futures Markets: Evidence from Intraday Behavior of the S&P 500 Index," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(3), pages 95-107.
    • Handle: RePEc:ibf:ijbfre:v:8:y:2014:i:3:p:95-107
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    Cited by:

    1. Jeng-Hong Chen, 2015. "The Trading Costs Of Early Earnings Release: The Case Of Hewlett-Packard Company," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 6(3), pages 1-10.

    More about this item

    Keywords

    Intraday Return Volatility; S&P 500 Index; Spot and Futures Markets; Bid-Ask Spreads;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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