Journal of Banking & Finance Vol. 22 No. 2 1998
Measuring cash-futures temporal effects in the UK using partial adjustment factors
Abstract
The nature and extent of intertemporal adjustments across stock index futures and cash markets in the UK are investigated in terms of partial adjustment factors. This approach affords the means of establishing both differential price movements in these markets and, additionally, providing a readily interpretable measure of the degree of such relative price movements. Analytic expressions are developed for jointly measuring the partial adjustment factors in cash and futures markets using a partial adjustment with noise model. The measures are adjusted for non-synchronous trading and asymptotic sampling variances derived. Adjustment factors are estimated using daily data over the period 1984–1992, with differencing intervals ranging from one to thirty days. Price adjustments were found to be fuller in futures markets, particularly over shorter differencing intervals. Corrections for non-synchronous effects in the cash market increased the magnitude of price adjustment, as did the exclusion of data from the 1987 crash period.
- DOI
- 10.1016/s0378-4266(97)00056-3
- Volume
- 22
- Issue
- 2
- Pages
- 221-243
- Language
- en
- Sources
- crossref openalex bibtex:phds-export.bib