Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/43243
Authors: 
Theissen, Erik
Year of Publication: 
2009
Series/Report no.: 
CFS Working Paper 2009/27
Abstract: 
We reconsider the issue of price discovery in spot and futures markets. We use a threshold error correction model to allow for arbitrage operations to have an impact on the return dynamics. We estimate the model using quote midpoints, and we modify the model to account for time-varying transaction costs. We find that the futures market leads in the process of price discovery. The lead of the futures market is more pronounced in the presence of arbitrage signals. Thus, when the deviation between the spot and the futures market is large, the spot market tends to adjust to the futures market.
Subjects: 
Futures Markets
Threshold Error Correction
Information Shares
Common Factor Weights
JEL: 
G13
G14
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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