Intraday Lead-Lag Relationships between the Futures-, Options and Stock Market

F.C.J.M. de Jong, M.W.M. Donders

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Abstract

In rational, efficiently functioning and complete markets, returns on derivative and underlying securities should be perfectly contemporaneously correlated.Due to market imperfections, one of these markets may reflect information faster.The use of high-frequency data and the choice for a small unit time interval to measure these lead-lag relations comes at the cost of some or many missing observations, causing traditional estimators to either under- or overestimate covariances and correlations.We use a new estimator to estimate lead-lag relationships between the cash AEX index, options and futures.We find that futures returns lead both options and cash index returns by approximately 10 minutes.The relationship between options and the cash market is not completely unidirectional
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages16
Volume1996-108
Publication statusPublished - 1996

Publication series

NameCentER Discussion Paper
Volume1996-108

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Keywords

  • pricing
  • futures markets
  • stock markets
  • option markets

Cite this

de Jong, F. C. J. M., & Donders, M. W. M. (1996). Intraday Lead-Lag Relationships between the Futures-, Options and Stock Market. (CentER Discussion Paper; Vol. 1996-108). Finance.