Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70114
Authors: 
Theissen, Erik
Year of Publication: 
2011
Series/Report no.: 
CFR Working Paper 09-17 [rev.]
Abstract: 
We reconsider the issue of price discovery in spot and futures markets. We use a threshold error correction model to allow for arbitrage opportunities 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 a) the futures market leads in the process of price discovery and that b) the presence of arbitrage opportunities has a strong impact on the dynamics of the price discovery process.
Subjects: 
price discovery
futures markets
threshold error correction
common factor weights
JEL: 
G13
G14
Document Type: 
Working Paper

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