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Joshua Turkington and David Walsh
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Abstract
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The high frequency casual relationship between prices
of share price index futures and the All-Ordinaries Index
(AOI) in Australia is studied. This allows conclusions to
be drawn on the impact of market structure on informed
trading and on the nature of the cost-of-carry model.
The usual result of futures leading spot is strongly
rejected, with clear bi-directional causality, and
with many significant lags. This suggests that an
electronic market may enhance price disovery.
However, price discovery is quite slow which suggests
that there is no
preferred market for informed trading in this
environment, and that tests for the presence of
arbitrage opportunities and for the correctness of
the cost-of-carry model may be ineffective unless
the lag structure is taken into account.
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Download this article.
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Keywords
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CAUSALITY; INDEX FUTURES; COST-OF-CARRY.
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Contact Details
Joshua Turkington
The University of Western Australia
Nedlands WA 6907
David Walsh
The University of Western Australia
Nedlands WA 6907
and
State Street Global Advisors
Level 44
Gateway
1 Macquarie Place
Sydney NSW 2000
E-mail: David_Walsh@SSgA.com
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We wish to thank the Sydney Futures Exchange (SFE)
and the Securities Industry Research Centre of
the Asia-Pacific (SIRCA) for data, and Jennifer
Cross for helping with its manipulations. We also
thank Michael McAleer, AJM Area Editor Stephen Gray
and two anonymous referees for thoughtful comments.
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