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Erscheinungsjahr: 
2017
Schriftenreihe/Nr.: 
CFR Working Paper No. 14-10
Versionsangabe: 
Revised Version
Verlag: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Zusammenfassung: 
We develop a model of illiquidity transmission from spot to futures markets that formalizes the derivative hedge theory of Cho and Engle (1999). The model shows that spot market illiquidity does not translate one to one to the futures market but, rather, interacts with price risk, liquidity risk, and the risk aversion of the market maker. The model's predictions are tested empirically with data from the stock market and markets for single-stock futures and index futures. The results support our model and show that the derivative hedge theory provides an explanation for the liquidity link between spot and futures markets.
Schlagwörter: 
illiquidity
liquidity risk
futures markets
JEL: 
G10
G13
Dokumentart: 
Working Paper

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