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

Author

Listed:
  • Joshua Turkington

    (The University of Western Australia, Nedlands, WA, 0907, Australia.)

  • David Walsh

    (The University of Western Australia and State Street Global Advisors, Level 44, Gateway, 1 Macquarie Place Sydney 2000. Email: David_Walsh@SSgA.com)

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.

Suggested Citation

  • Joshua Turkington & David Walsh, 1999. "Price Discovery and Causality in the Australian Share Price Index Futures Market," Australian Journal of Management, Australian School of Business, vol. 24(2), pages 97-113, December.
    • Handle: RePEc:sae:ausman:v:24:y:1999:i:2:p:97-113
    DOI: 10.1177/031289629902400201
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    References listed on IDEAS

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    Cited by:

    1. Jonathan Dark, 2004. "Long memory in the volatility of the Australian All Ordinaries Index and the Share Price Index futures," Monash Econometrics and Business Statistics Working Papers 5/04, Monash University, Department of Econometrics and Business Statistics.
    2. Cevik, Emrah Ismail & Pekkaya, Mehmet, 2007. "Spot Ve Vadeli̇ İşlem Fi̇yatlarinin Varyanslari Arasindaki̇ Nedenselli̇k Testi̇ [Causality in variance test between spot and futures prices]," MPRA Paper 71301, University Library of Munich, Germany.
    3. C. Kailash P. & К. Прадхам Ч., 2017. "Движение цен на спотовых и фьючерсных рынках: Подтверждение индексами S&P CNX NIFTY // Price movements in futures and spot markets: Evidence from the S&P CNX Nifty Index," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 5(1), pages 32-41.
    4. Kapil Gupta & Balwinder Singh, 2007. "Investigating the Pricing Efficiency of Indian Equity Futures Market," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 32(4), pages 486-512, November.
    5. Abderrahmen Aloulou & Siwar Ellouze, 2017. "Does fundamental value run asset price formation process? Evidence from option price information content," Journal of Asset Management, Palgrave Macmillan, vol. 18(4), pages 255-268, July.

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