Liquidity Effects of the Introduction of the S&P 500 Index Futures Contract on the Underlying Stocks

1993 ◽  
Vol 66 (2) ◽  
pp. 171 ◽  
Author(s):  
Narasimhan Jegadeesh ◽  
Avanidhar Subrahmanyam
Keyword(s):  
Index Futures ◽  
Futures Contract ◽  
Underlying Stocks

scholarly journals Shock Transfer in Futures and Spot Markets: An Agent-Based Simulation Modelling Method

2021 ◽  
Vol 2021 ◽  
pp. 1-12
Author(s):  
Xuan Zhou ◽  
Menggang Li
Keyword(s):  
Simulation Modelling ◽  
Futures Market ◽  
Stock Index ◽  
Market Model ◽  
Stock Index Futures ◽  
Risky Assets ◽  
Index Futures ◽  
Market Interaction ◽  
Futures Contract ◽  
Arbitrage Trading

There have been heated debates about the role of stock index futures in the financial market, especially during the crash periods. In this paper, a multiagent spot-futures market model is developed to analyze the micromechanism of shock transfer across spot and futures markets. We assume that there are two stocks and one stock index futures contract in the spot-futures market. Agents are heterogeneous, including fundamentalists, chartists, noise traders, and arbitragers. The spot market and the futures market are linked by arbitragers. The simulation results show that our spot-futures market model can reproduce various important stylized facts, including the price co-movement between stock index prices and index futures prices and the fat-tailed distribution of the returns of risky assets and the basis. Further analysis shows that when we introduce an exogenous fundamental shock to one of the stocks, the backwardation phenomenon appears in the futures market and the shock is widespread across the whole market by means of index futures. Moreover, the backwardation gradually disappears when the number of arbitragers increases. Besides, when there are few arbitragers or when there are sufficient arbitragers, shocks cannot be transferred to other stocks via the futures market, while an intermediate level of arbitrage will amplify the shock transfer and hurt market stability. These findings underscore that arbitragers play an important role in spot-futures market interaction and shock transfer, and adequate arbitrage trading during crises may help eliminate the positive basis and halt the further spread of the crises.

Price Clustering in the Nikkei 225 Stock Index Futures Contract on the SIMEX: An Intraday Empirical Analysis

2000 ◽  
Vol 03 (04) ◽  
pp. 519-533 ◽  
Author(s):  
Horace Chueh
Keyword(s):  
Financial Markets ◽  
Empirical Analysis ◽  
Futures Market ◽  
Stock Index ◽  
Stock Index Futures ◽  
Index Futures ◽  
Futures Contract ◽  
High Volatility ◽  
Price Clustering ◽  
Bid Ask Spreads

Price clustering in financial markets has been identified by previous studies. However, few studies have examined the phenomenon in the futures market. This paper presents price clustering for the Nikkei 225 stock index futures contract on the SIMEX. An extremely low percentage of odd-tick trades appears at the opening for the first trading session, while moderately low percentage occurs at the opening and the closing for the second trading session. GARCH estimation results document that the degree of price clustering increases in the periods with high volatility, bid-ask spreads, and transaction frequency. Price clustering tends to occur on the last trading day which the futures contract is to be presented. Generally, the results support the negotiation hypothesis of price clustering proposed by Harris (1991).

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