Index-Futures Lead-Lag And Price -Volume Causality: A Study Of The Malaysian Stock Index Futures Market
Although much research has been undertaken on the index-futures lead-laq and price-volume causality in developed countries hardly has any been focused on the Malaysian stock index futures market. This study focuses on the index-futures lead-laq and price-volume causality in the Malaysian stock index...
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| Format: | Thesis |
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2003
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| Summary: | Although much research has been undertaken on the index-futures lead-laq and price-volume causality in developed countries hardly has any been focused on the Malaysian stock index futures market. This study focuses on the index-futures lead-laq and price-volume causality in the Malaysian stock index futures market. This research is also intended to examine the seasonal effects in the Malaysian stock index futures market.
This study was undertaken using the daily data for closing price for both stock index and stock index futures and also the daily data for trading volume for stock index futures in Malaysia. The data, which covered the period of December 15, 1995 till June 30, 2001, was divided into three subperiods in view of variation in activity largely due to the Asian financial crisis. The aims of this study are: i) to determine whether there is any significant lead-laq relatuionship in terms of price index between the futures market and the stock market in Malaysia; ii) to determine the causal relationship between price index and trading volume in the Malaysian stock index futures market; and iii) determine whether there is any evidence of significant seasonal effects on stock index futures market returns and trading volume.
The findings generally indicated thet the stock index futures returns leads the stock index returns by one day during the learning period and the stable period. However the stock index futures returns led the stock index returns by two days during the high volatility peruiod. This means that during high volatility period, the lead from stock index futures was greater than during the other subperiods. The study also found the existence of a contemporaneous relationship between the stock index returns and the stock index futures returns in the Malaysian spot and financial futures markets. Evidence also indicated that the two markets are highly cointegrated.
In relation to the price-volume causality, the study found the existence of unidirectional causality running from volume to returns in the futures market during the learning period and bidirectional causality during the high volatility period. However there was no evidence of causality during the stable period. The study also found evidence pointing to the existence of day-of-week effect, week-of-month effect and month-of-year effect in the Malaysian stock index futures market.
Based on the findings of the subperiod 3 (the current period), the study recommends that an investor should monitor the movements of the stock index futures returns because the previous day's and today's increase in stock index futures returns lead to an increase in todays's stock index returns. Furthermore, an investor should also consider investing in stock index futures on Tuesdays and the second week of each month because the study found that the returns was highest these points of time. |
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