Intraday Return Dynamics Between Spot and Futures Markets under Different Market Conditions – Threshold Trading Strategy

• Main Authors: You-wen Hu, 胡又文
• Other Authors: Tai Ma
• Format: Others
• Language: en_US
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/uwxjzj

碩士 === 國立中山大學 === 財務管理學系研究所 === 102 === The aim of this study is to examine the lead-lag effect between the futures and spot markets in the Taiwan financial market and three types of major indexes, over the period 2007 to 2012, using intraday data. We use different aspects to discuss the causes of lead-lag effect: (1) The changes of exchange rules (the restriction of short-selling in the spot market, tax-reduction, and speed-up information disclosure in the futures market); (2) market quality (volatility, volume, and liquidity in the futures market and basis); and (3) investors structure. Last, we establish trading strategies using market qualities to exploit the existence of lead-lag effect. This study finds that the leading ability of the futures market in Taiwan, which is about 9-18 minutes, is stronger than in other countries. In the aspect of exchange rules, these three changes enlarge the information gap between the futures and spot markets, which makes the leading ability of futures stronger. In the aspect of market quality, the leading ability of futures is stronger when the futures market has higher volatility, volume (number of contracts), and liquidity. The effect of basis will change over time. We believe that there is more information content in the market when there is higher volatility and higher volume, and higher liquidity allows information to enter the market quickly. In the aspect of investor structure, the order and trading of foreign investors holds the most information. The leading intensity of futures strength is directly proportional with participation of foreign investors, followed by institutional investors and individuals. Last, the strategy, which is to exploit lead-lag effect, can only earn profit under extreme market conditions. In normal a market, profit will be diluted by the high transaction costs of the spot market.