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High-frequency lead-lag relationships in the Chinese stock index futures market: tick-by-tick dynamics of calendar spreads

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  • Guanlin Li
  • Xiyan Chen
  • Yingzheng Liu

Abstract

Lead-lag relationships, integral to market dynamics, offer valuable insights into the trading behavior of high-frequency traders (HFTs) and the flow of information at a granular level. This paper investigates the lead-lag relationships between stock index futures contracts of different maturities in the Chinese financial futures market (CFFEX). Using high-frequency (tick-by-tick) data, we analyze how price movements in near-month futures contracts influence those in longer-dated contracts, such as next-month, quarterly, and semi-annual contracts. Our findings reveal a consistent pattern of price discovery, with the near-month contract leading the others by one tick, driven primarily by liquidity. Additionally, we identify a negative feedback effect of the "lead-lag spread" on the leading asset, which can predict returns of leading asset. Backtesting results demonstrate the profitability of trading based on the lead-lag spread signal, even after accounting for transaction costs. Altogether, our analysis offers valuable insights to understand and capitalize on the evolving dynamics of futures markets.

Suggested Citation

  • Guanlin Li & Xiyan Chen & Yingzheng Liu, 2025. "High-frequency lead-lag relationships in the Chinese stock index futures market: tick-by-tick dynamics of calendar spreads," Papers 2501.03171, arXiv.org.
    • Handle: RePEc:arx:papers:2501.03171
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