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The relationship between the S&P 500 spot and futures indices: brothers or cousins?

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  • Chien-Liang Chiu
  • Shu-Mei Chiang
  • Feng Kao

Abstract

This paper applies the GARJI model to investigate the impact of news on the S&P 500 spot and index futures. We show their reactions are dissimilar to good or bad news. Hence, though they are like brothers, they are cousins. Besides, the persistence and sensitivity parameters for the arrival of jump events are quite high and significant. It means a high probability of many jumps today seems to be followed by a high probability of many jumps tomorrow. We suggest it is necessary to consider the time series dynamics in the jump size distribution when studying the impact of news on financial markets.

Suggested Citation

  • Chien-Liang Chiu & Shu-Mei Chiang & Feng Kao, 2006. "The relationship between the S&P 500 spot and futures indices: brothers or cousins?," Applied Financial Economics, Taylor & Francis Journals, vol. 16(5), pages 405-412.
    • Handle: RePEc:taf:apfiec:v:16:y:2006:i:5:p:405-412
    DOI: 10.1080/09603100500400239
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    2. Xuan Vinh Vo & Kevin Daly, 2008. "Volatility amongst firms in the Dow Jones Eurostoxx50 Index," Applied Financial Economics, Taylor & Francis Journals, vol. 18(7), pages 569-582.
    3. Chiang, Shu-Mei & Chen, Hsin-Fu & Lin, Chi-Tai, 2013. "The spillover effects of the sub-prime mortgage crisis and optimum asset allocation in the BRICV stock markets," Global Finance Journal, Elsevier, vol. 24(1), pages 30-43.

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