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Relationship between stock futures index and cash prices index: empirical evidence based on Malaysia data

Zakaria, Zukarnain and Shamsuddin, Sofian (2012) Relationship between stock futures index and cash prices index: empirical evidence based on Malaysia data. Journal of Business Studies Quarterly, 4 (2). pp. 103-112. ISSN 2152-1034

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The empirical relationship between cash price index and future price index has been studied extensively. However, only few studies have been carried out in case of emerging markets. The main focuses of the previous studies were to investigate the lead - lag or causality relationship between these two indexes. In perfect markets, returns on derivative and underlying securities should be perfectly and contemporaneously correlated. However, due to market imperfections, one of these markets may reflect information faster. This paper examined this issue based on daily data of Malaysian stock market by using cointegration and Granger causality regression. The results from cointegration tests show that cash price index and futures price indexes in Malaysia are cointegrated indicating the existence of long run relationship between these two variables. Meanwhile the results from Granger causality tests found that the direction of causality relationship is unidirectional that running from cash market to futures market. The finding suggests that in the emerging market like Malaysia where the futures market is less active compared to the cash market, the cash market reflects to the new information faster than the futures market. Therefore, spot market plays a role as price discovery vehicle for the stock market instead of futures market.

Item Type:Article
Uncontrolled Keywords:tock market, Futures Price Index
Subjects:H Social Sciences > HG Finance
Divisions:Business and Advances Technology
ID Code:31161
Deposited By: Fazli Masari
Deposited On:30 Apr 2014 02:03
Last Modified:28 Jan 2019 03:47

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