Price discovery in the German equity index derivatives markets

• Published in: The journal of futures markets Vol. 19; no. 6; pp. 619 - 643
• Main Authors: Booth, G. Geoffrey, So, Raymond W., Tse, Yiuman
• Format: Journal Article
• Language: English
• Published: New York John Wiley & Sons, Inc 01-09-1999; Published by J. Wiley in affiliation with the Center for the Study of Futures Markets, Columbia University
• Subjects: Capital market; Equity; Financial economics; Futures; Germany; Stock exchange; Stock prices
• ISSN: 0270-7314; 1096-9934
• DOI: 10.1002/(SICI)1096-9934(199909)19:6<619::AID-FUT1>3.0.CO;2-M

This article examines the intraday price discovery process among stock index, index futures, and index options in Germany using DAX index securities and intraday transactions data. The three index securities contribute to a common factor, but the spot index and index futures have substantially larger information shares than index options. Moreover, the returns of the three index securities exhibit feedback effects, with futures being dominant. Because the trading costs of the futures appear to be the lowest of the three and those of the options to be the highest, the results are consistent with the transaction cost hypothesis. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 619–643, 1999