Essays on the behavior of nikkei 225 futures prices

Abstract

The Nikkei 225 futures contract is one of the major and actively traded stock index futures contracts. This thesis presents some empirical investigations of behavior for Nikkei 225 futures prices, especially focuses on the decomposition of components of bid-ask spread and how the bid-ask spread components vary as time passes. Moreover, the information transmission between the markets is analyzed using error correction model and regression analyses. Chapter 2 presents the daily and intraday behavior of the Nikkei 225 futures prices. Using high frequency transaction level data from 1993 to 1996, chapter 3 presents a decomposition of the bid-ask spread of the Nikkei 225 futures and time-varying bid-ask components of Nikkei 225 futures on SGX-DT using the indicator model of Huang and Stoll (1997). The spread is decomposed two-way and three-way, and analyzed how the components vary as time passes. Furthermore, the bid-ask spread components are estimated while the market opens on the SGX-DT only. The empirical results support the presence of a smaller adverse information cost (3.70%) and a large inventory holding cost (63.39%). Time-varying analyses show an L-shaped pattern of the adverse information costs and reverse U-shaped pattern of the inventory holding costs during a day. The L-shaped adverse information pattern is consistent with previous theoretical and empirical studies of traders acquiring information from the trading processes. The reverse U-shaped pattern of the inventory holding costs is consistent with the behavior of futures traders. Moreover, for the last 15 minutes when only the SGX-DT is open (TSE-non-trading period), there is a relatively large portion of adverse information cost (7.79%). The other topic that has been received much attention by researchers or traders, is an information transmission or volatility spillover between financial markets. Chapter 4 presents an analysis of the information transmission between Nikkei 225 futures traded on ...